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, 1997...Commission File Number 1-155
THE LEHIGH GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1920670
- --------------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1055 Washington Blvd., Stamford, CT 06903
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 327-0900
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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, 1997
- ------------------------------------ ----------------------------
Common Stock, par value 22,553,500 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, 1997 and 1996
and Six Months Ended June 30, 1997 and 1996 1
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 2-3
Consolidated Statements of Changes in
Shareholders' Deficit - Six Months
Ended June 30, 1997 4
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1997 and 1996 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 5. Other Information 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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 3,240 $ 2,868 $ 5,765 $ 5,988
Cost of Sales 2,171 1,998 3,776 4,201
-------- -------- -------- --------
Gross profit 1,069 870 1,989 1,787
Selling, general and administration expenses 1,121 970 1,966 1,969
-------- -------- -------- --------
Operating income (loss) (52) (100) 23 (182)
--------
Other income (expense):
Interest expense (118) (113) (236) (220)
Interest and other income 6 4 12 7
Amortization of deferred financing (7) -- (14) --
-------- -------- -------- --------
(119) (109) (238) (213)
Loss from continuing operations
before income taxes (171) (209) (215) (395)
Income taxes 0 0 1 1
-------- -------- -------- --------
Net loss $ (171) $ (209) $ (216) $ (396)
======== ======== ======== ========
Loss per share
Primary and fully diuluted $ (.01) $ (.02) $ (.02) $ (.04)
======== ======== ======== ========
Weighted average number of common shares
and share equivalents outstanding
Primary and Fully diluted 11,276 10,339 11,089 10,339
======== ======== ======== ========
</TABLE>
1
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIESCONSOLIDATED BALANCE
SHEETS(IN THOUSANDS)
June 30, December 31,
1997 1996
------ ------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 463 $ 471
Accounts receivable, net of allowance
for doubtful account of $404 and $342 4,897 3,581
Inventories, net 1,645 1,215
Prepaid expenses and other current assets 91 279
------ ------
Total current assets 7,096 5,546
Property, plant and equipment, net of
accumulated depreciation and
amortization 55 50
Other assets 26 29
Total assets $7,177 $5,625
====== ======
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,
1997 1996
---- ----
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 390 $ 390
Accounts payable 1,585 954
Accrued expenses and other liabilities 1,775 1,642
--------- ---------
Total current liabilities 3,750 2,986
--------- ---------
Long-term debt, net of current maturities 3,429 2,725
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 1996 and 1995;
which excludes 3,016,249 shares held as
treasury stock in 1996 and 1995 12 11
Additional paid-in capital 106,893 106,594
Accumulated deficit from January 1, 1986 (105,253) (105,037)
Treasury stock - at cost (1,654) (1,654)
--------- ---------
Total shareholders' deficit (2) (86)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 7,177 $ 5,625
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
3
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF
CHANGESIN 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, 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)
========= ========= ========= =========
Balance January 1, 1997 $ 11 $ 106,594 $(105,037) $ (1,654) $ (86)
Debenture conversion 1 299 -- -- 300
Net Loss -- -- $ (216) -- (216)
--------- --------- --------- --------- ---------
Balance June 30, 1997 $ 12 $ 106,893 $(105,253) $ (1,654) $ (2)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
4
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (216) $ (396)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 43 18
Changes in assets and liabilities:
Accounts Receivable (1,316) (134)
Inventories-net (430) 230
Prepaid and other current assets 188 (28)
Accounts payable 631 159
Accrued expenses 129 155
------- -------
Net cash provided by (used in) operating activities (971) 4
------- -------
Cash flows from investing activities:
Capital expenditures -- --
Net cash provided by (used in) investing activities (41) (11)
------- -------
Cash flows from financing activities
Net borrowings from C.I.T. Revolver 1,004 0
Net payments under bank debt 0 (180)
Repayment of Capital leases 0 (7)
Convertible Debenture 0 300
------- -------
Net cash provided by financing activities 1,004 113
------- -------
Net changes in cash (8) 106
Cash at beginning of period 471 347
------- -------
Cash at end of period $ 463 $ 453
======= =======
</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, 1997 and 1996 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, 1996 Report on Form 10-K.
The results of operations for the six month period ended June 30, 1997 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
1997 1996
- --------------------------------------------------------------------------------
(in thousands)
Statement of cash flows
Six months ended June 30,
Cash paid during the six months for:
Interest $ 155 $ 134
Income taxes 1 1
Supplemental Disclosure of non-cash financing activities:
On February 7, 1997, First Medical Corporation elected to convert the debenture
into 937,500 shares of the Company's common stock.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER OF 1997 IN COMPARISON
WITH SECOND QUARTER OF 1996
Revenues for the second quarter of 1997 were $3.2 million, an increase of
$372,000 or 12.97% compared to the second quarter of 1996. The increase in
revenues is due in part to Hallmark hiring two additional sales people with
in-depth knowledge of the electrical industries.
Gross profit as a percentage of sales increased from 30.3% in the second
quarter of 1996 to 33% in the second quarter of 1997. This increase is primarily
due to the closing of the Miami export operation, whose profit margins were much
lower than Hallmark's New York operation.
Selling, general and administrative expenses increased by $151,000 or 15.6%
in the second quarter of 1997 as compared to the second quarter of 1996. The
increase was primarily due to Hallmark hiring two additional sales people and
providing for additional bad debt reserve.
The factors discussed above resulted in an operating loss in the second
quarter of 1997 of $52,000 as compared to an operating loss of $100,000 in the
second quarter of 1996. There is no provision for income taxes in both 1997 and
1996 due to the Company's operating losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST HALF OF 1997 IN COMPARISON
WITH FIRST HALF OF 1996
Revenues earned for the first half of 1997 were approximately $5.8 million
a decrease of approximately $200,000 or 3.72% compared to the first half of
1996. This decrease in revenues was due largely to the closing of the Miami
export operation. Gross profit as a percentage of sales increased from 29.9% in
the first half of 1996 to 34.5% in the first half of 1997. This increase is
primarily due to the closing of the Miami export operation, whose profit margins
were much lower than Hallmark's New York operation.
Selling general and administrative expenses decreased by $3,000 or .15% in the
first half of 1997 as compared to the first half of 1996. This decrease was due
in part to the closing of the Miami export operation and the reduction of legal
fees.
7
<PAGE>
The factors discussed above resulted in an operating income of $23,000 for the
first half of 1997, as compared to an operating loss of $182,000 for the first
half of 1996. There was no provision for income taxes in both 1997 and 1996 due
to the Company's operating losses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of approximately $3.3
million (including cash and cash equivalents of $463,000), compared to working
capital of $2.6 million at December 31, 1996.
On October 29, 1996 in connection with the execution of a definitive merger
agreement between the Company and First Medical Corporation, the Company issued
a convertible debenture in the amount of $300,000 plus interest at two (2%)
percent per annum over the prime lending rate of Chase Manhattan Bank, N.A.
payable on the 1st day of each subsequent month next ensuing through and
including 24 months thereafter. On the 24th month, the outstanding principal
balance and all accrued interest shall become due and payable.
The proceeds of the loan from First Medical Corporation were used to satisfy the
loan the Company previously obtained from DHB on June 11, 1996. On February 7,
1997, First Medical Corporation elected to convert the debenture into 937,500
shares of the Company's common stock.
The Company continues to be in default in the payment of interest (approximately
$704,000 interest was past due as of June 30, 1997) on the $390,000 aggregate
principal amount of its 13-1/2% Senior Subordinated Notes due May 15, 1998
("13-1/2% Notes") and 14-7/8% Subordinated Debentures due October 15, 1995
("14-7/8% Debentures") that remain outstanding and were not surrendered to the
Company in connection with its financial restructuring consummated in 1991. The
Company has been unable to locate the holders of the 13-1/2% Notes and 14-7/8%
Debentures (with the exception of certain of the 14-7/8 Subordinated Debentures
which were retired during 1996).
On April 10, 1995 a judgement 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.
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
attorney's 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. On February 18,
1997, the Supreme Judicial Court of Maine affirmed the Superior Court's
decision. In July 1997, the Company and the State of Maine agreed to accept
$215,000 to satisfy the judgment.
The Company is involved in other minor litigation, none of which is considered
by management to be material to its business or, if adversely determined, would
have a material adverse effect on the Company's financial condition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company continues to be in default in the payment of interest (approximately
$704,000 interest is past due as of June 30, 1997) on $390,000 principal amount
of 13-1/2% Notes and 14-7/8 Debentures.
ITEM 5. OTHER INFORMATION.
Subsequent to the end of the period, as reported on a Form 8-K filed on July 24,
1997, Lehigh Management Corp., a subsidiary of the Company, was merged with and
into First Medical Corporation ("FMC") and each outstanding share of common
stock of FMC was exchanged for (i) 1,127.675 shares of Lehigh's Common Stock,
par value $.001 per share ("Lehigh Common Stock"), and (ii) 103.7461 shares of
Lehigh's Series A Convertible Preferred Stock, par value $.001 per share (the
"Lehigh Preferred Stock"), each of which is convertible into 250 shares of
Lehigh Common Stock and has a like number of votes per share, voting together
with the Lehigh Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
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
Executive Vice President
and Chief Financial Officer
Dated: August 18, 1997
<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 PERIOD ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 463
<SECURITIES> 0
<RECEIVABLES> 5,301
<ALLOWANCES> 404
<INVENTORY> 1,645
<CURRENT-ASSETS> 7,096
<PP&E> 740
<DEPRECIATION> 685
<TOTAL-ASSETS> 7,177
<CURRENT-LIABILITIES> 3,750
<BONDS> 390
0
0
<COMMON> 11,227
<OTHER-SE> (2)
<TOTAL-LIABILITY-AND-EQUITY> 7,177
<SALES> 0
<TOTAL-REVENUES> 5,765
<CGS> 3,776
<TOTAL-COSTS> 1,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
