U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended 6/30/96
[_] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to______________
Commission file number 811-3584
Levcor International, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 06-0842701
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1071 Avenue of the Americas, New York, NY 10018
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(Address of Principal Executive Offices)
(203) 264-7428
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(Issuer's Telephone Number, Including Area Code)
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(Former name, Former Address and Former Fiscal year, if Changes
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
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As of July 31, 1996, 1,723,499 shares of the issuer's common stock, par
value $.56 per share, were outstanding.
Transitional Small Business Disclosure Format(check one): Yes No X
--- ---
<PAGE>
LEVCOR INTERNATIONAL, INC.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Balance Sheet as of June 30, 1996 (Unaudited) 1
Statements of Operations for the
Six Months Ended June 30, 1996 and
June 30, 1995 (Unaudited) 2
Statements of Operations for the
Three Months Ended June 30, 1996 and
June 30, 1995 (Unaudited) 3
Statements of Cash Flows for the
Six Months Ended June 30, 1996 and
June 30, 1995 (Unaudited) 4
Notes to Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 7
Part II. OTHER INFORMATION 11
Signatures 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LEVCOR INTERNATIONAL, INC.
BALANCE SHEET
June 30, 1996
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,068
Accounts receivable 16,952
Due from factor 85,964
Inventories 1,266,605
Prepaid expenses 275
-----------
Total current assets $ 1,376,864
OIL AND GAS PROPERTIES - AT COST
(using full cost method), net of
accumulated depletion of $ 847,522 30,976
-----------
$ 1,407,840
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 330,294
Current maturities of long-term debt 282,800
-----------
Total current liabilities 613,094
LONG TERM DEBT, less current maturities 1,218,400
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock, par value $.56 per share;
authorized 15,000,000 shares, outstanding
1,723,499 shares 964,394
Capital in excess of par value 5,003,566
Accumulated deficit (6,391,614)
(423,654)
-----------
$ 1,407,840
===========
The accompanying notes are an integral part of these statements.
1
<PAGE>
LEVCOR INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the six months ended June 30, 1996 1995
Revenue:
Looms Division sales $ 1,428,606 $ 330,589
Less: cost of sales 1,237,958 275,709
----------- -----------
Gross profit 190,648 54,880
Oil and gas sales 23,671 19,207
Less: cost of sales 12,467 21,665
----------- -----------
Gross profit(loss) 11,204 (2,458)
Interest income and royalties 80 37,962
----------- -----------
Total revenue 201,932 90,384
----------- -----------
Expenses:
Selling expenses: Looms Division
Salaries, benefits and payroll taxes 112,029 39,569
Commissions 85,580 25,523
Other selling expenses 14,138 9,343
----------- -----------
Total selling expenses 211,747 74,435
General and administrative expense
Salaries, benefits and payroll taxes 43,899 42,418
Accounting and administrative fees 29,475 9,735
Audit fees 21,000 14,500
Directors' fees and expenses 2,500 2,500
Factor's fees 11,592 2,706
Insurance 10,392 2,140
Interest expense 58,450 14,282
Legal fees 10,066 20,423
Transfer agent fees 5,450 4,200
Other business taxes 2,663 1,365
Other expenses 6,650 2,385
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Total general and administrative expenses 202,137 116,654
Total expenses 413,884 191,089
----------- -----------
Net (loss) (211,952) (100,705)
Accumulated deficit - beginning of year (6,179,662) (5,598,612)
----------- -----------
Accumulated deficit - end of quarter ($6,391,614) ($5,699,317)
=========== ===========
Average number of shares outstanding 1,706,832 1,647,133
Net (loss) per common share ($ .12) ($ .06)
=========== ===========
The accompanying notes are an integral part of these statements.
2
<PAGE>
LEVCOR INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended June 30, 1996 1995
Revenue:
Looms Division sales $ 368,380 $ 330,589
Less: cost of sales 338,558 275,709
----------- -----------
Gross profit 29,822 54,880
Oil and gas sales 11,997 8,877
Less: cost of sales (997) 9,377
----------- -----------
Gross profit(loss) 12,994 (500)
Interest income and royalties 80 17,505
----------- -----------
Total revenue 42,896 71,885
----------- -----------
Expenses:
Selling expenses: Looms Division
Salaries, benefits and payroll taxes 61,971 39,569
Commissions 29,359 25,523
Other selling expenses 11,317 9,343
----------- -----------
Total selling expenses 102,647 74,435
General and administrative expense
Salaries, benefits and payroll taxes 22,675 21,879
Accounting and administrative fees 15,248 8,852
Audit fees 1,000 --
Directors' fees and expenses 1,250 625
Factor's fees 4,257 2,706
Insurance 5,150 1,073
Interest expense 29,080 14,282
Legal fees 5,566 13,711
Transfer agent fees 1,300 2,100
Other business taxes 695 149
Other expenses 2,022 1,238
----------- -----------
Total general and administrative expenses 88,243 66,615
Total expenses 190,890 141,050
----------- -----------
Net (loss) (147,994) (69,165)
Accumulated deficit - beginning of quarter (6,243,620) (5,630,152)
----------- -----------
Accumulated deficit - end of quarter ($6,391,614) ($5,699,317)
=========== ===========
Average number of shares outstanding 1,723,499 1,662,133
Net (loss) per common share ($ .09) ($.04 )
=========== ===========
The accompanying notes are an integral part of these statements.
3
<PAGE>
LEVCOR INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended June 30, 1996 1995
Cash flows from operating activities
Net (loss) ($ 211,952) ($ 100,705)
Adjustments to reconcile (net loss) to net
cash (used in) operating activities:
Depletion and depreciation 5,763 4,637
Services paid in common stock 25,000 18,750
Changes in operating assets and liabilities,
net of assets acquired
Accounts receivable 23,504 (5,382)
Due from factor (33,272) (284,488)
Inventories 256,135 (1,593,898)
Other assets -- 225,000
Prepaid expenses 20,639 1,672
Accounts payable and accrued expenses (162,245) 244,660
----------- -----------
Net cash (used in) operating activities (76,428) (1,489,754)
Cash flows from investing activities
Proceeds on sale of property - net -- 16
Decrease in notes receivable -- 150,000
----------- -----------
Net cash provided by investing activities -- 150,016
Cash flows from financing activities
Repayment of advances from shareholder (30,000) --
Increase in long term debt 87,200 1,414,000
----------- -----------
Net cash provided by financing activities 57,200 1,414,000
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (19,228) 74,262
Cash and cash equivalents at beginning of year 26,296 4,724
----------- -----------
Cash and cash equivalents at end of quarter $ 7,068 $ 78,986
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 58,450 $ 14,282
The accompanying notes are an integral part of these statements.
4
<PAGE>
LEVCOR INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30,1996
(UNAUDITED)
NOTE 1. The accompanying financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all
the information and footnote disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion
of management all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation have been included. Operating results
for the six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
These statements should be read in conjunction with the financial
statements and related notes included in the Company's annual report on
Form 10-KSB for the year ended December 31, 1995.
NOTE 2. On September 7, 1995, by amendment to its Certificate of
Incorporation, the Company changed its name to Levcor International,
Inc. effected a one for four reverse stock split of all outstanding
shares of common stock and increased the par value per share of the
authorized 15,000,000 shares of common stock from $0.14 to $0.56 per
share. All references to the number of share and per share amounts
reflect the reverse stock split.
Loss per share was calculated by dividing the Company's net loss by the
weighted average number of common shares outstanding during each period
adjusted for the dilutive effect of common stock equivalents when
applicable.
NOTE 3. On May 30, 1995, the Company executed and consummated an Asset
Purchase Agreement, dated May 1, 1995 (the "Asset Purchase Agreement")
with Andrex Industries Corp. ("Andrex"), a New York corporation,
pursuant to which Andrex sold to the Company certain of its assets (the
"Assets") for a purchase price of $1,414,000. payable in five equal
annual installments, together with interest thereon at 6% per annum. The
purchase price of the Assets was based upon the estimated market value
of the Assets. Robert A. Levinson, Director and Chief Executive Office
of the Company personally guaranteed the Company's obligations under the
promissory note evidencing the purchase price. The initial repayment
installment was made by Mr. Levinson on May 1, 1996 and is reflected on
the accompanying Balance Sheet under Long Term Debt - Loan from
Stockholders.
The Assets acquired by the Company constitute substantially all of the
inventory previously used by Andrex in the operation of its woven fabric
division. The Company is utilizing the Assets to operate a woven fabric
converting business producing fabrics used in the production of apparel.
These finished woven fabrics are sold primarily to major apparel
manufacturers in the fashion industry.
5
<PAGE>
In connection with the Asset acquisition, The Company also entered into
an agreement with Andrex, whereby the Company leased certain office
space from Andrex and Andrex agreed to provide certain administrative
services to the Company for a three year period at an annual fee of
$55,000, subject to certain annual increases.
NOTE 4. On May 1, 1993, the Company entered into a Joint Venture Agreement
(the "Agreement") with MRI Management Associates, Inc. ("MRI - MAI") and
Swenvest Corporation ("Swenvest") whereby loans (the "Loans") were made
to MRI - MAI to fund the purchase of an MRI scanning system. The Loans
were repaid as of June 30, 1995.
MRI-MAI agreed to pay to the Company for its own account an amount equal
to $10 per MRI scan (the "Pantepec Participation Payments") performed
with the use of the Scanner during the term of the Agreement, subject to
a minimum payment of (I) $70,000 during each of the years ending June
30, 1993 and June 30, 1994, and (ii) $30,000 during the year ending June
30, 1995. The Pantepec Participation Payments for the initial two
periods were duly paid. For the final annual period ended June 30, 1995,
Pantepec Participation Payments approximated $61,700. The Pantepec
Participation Payments were generally required to be paid as and when
payments on MRI scans were received by MRI-MAI. The final payment of
Pantepec Participation Payments was received by the Company in January
1996.
NOTE 5. With the introduction of the woven fabric conversion operation in May
1995, changes have been made in presentation of the Statement of
Operations (Page 2), specifically reflecting a deduction of cost of
sales from revenues to arrive at a gross profit. To be consistent, this
presentation also has been applied to revenues from oil and gas
operations, with costs and expenses consisting of "production costs and
severance taxes" and "depletion expense" comprising the cost of sales
deduction. The changes have necessitated a reclassification of the 1995
Statement of Operations as previously reported to allow for a comparison
of the two periods.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion should be read in conjunction with the Financial
Statements and Notes appearing elsewhere in this report.
General Overview
The Company's revenues during the period from 1985 to 1994 were mainly derived
from the sale of crude oil and natural gas produced from its ownership of
fractional interests in oil and gas wells and leases with respect thereto. In
the interests of diversifying its business, in 1992, the Company financed the
acquisition of certain high-technology medical equipment.
The Company acquired a woven fabric converting business, effective May 1, 1995,
that produces fabrics used in the production of apparel. This acquisition, which
was effected pursuant to an asset purchase agreement dated as of May 1, 1995
(the "Asset Purchase Agreement"), formed the basis of the Company's new line of
business, the Looms Division. With significantly reduced revenues from its oil
and gas properties, a naturally diminishing asset, and with the maturity of the
medical equipment financing agreements as of June 30, 1995, the operation of the
Looms Division will be the Company's primary business focus for the foreseeable
future.
Pursuant to the Asset Purchase Agreement, the Company acquired certain assets
(the "Assets"), including the merchandise inventory, of the Woven Fabric
Conversion Division of Andrex Industries Corp., a New York Corporation
("Andrex"). The Assets constituted substantially all of the assets previously
used by Andrex in the operation of its woven fabrics division.
The $1,414,000 purchase price of the Assets is payable in five equal annual
installments, together with interest thereon at 6% per annum. Robert A.
Levinson, Chairman of the Board of Directors and Chief Executive Officer of the
Company, personally guaranteed the Company's obligations under the promissory
note evidencing the purchase price. Although Mr. Levinson was formerly the Chief
Executive Officer and a director of Andrex, and the President of Andrex was
formerly a director of the Company, the Company believes that the term of the
Asset Purchase Agreement and related documents were negotiated on an arm's
length basis and are at least as favorable to the Company as could have been
obtained from an unaffiliated third party.
In connection with the acquisition of the Assets, the Company entered into an
agreement with Andrex whereby the Company leases certain office space from
Andrex and Andrex provides the Company with certain administrative services for
a three year period terminating in April 1998 at an annual cost to the Company
of $55,000, subject to certain annual increases.
7
<PAGE>
Results of Operations: six months ended June 30, 1996 as compared to June 30,
1995
The Company's revenue inclusive of interest income and royalties, increased from
$90,384 for the six months ended June 30, 1995 to $201,932 for the six months
ended June 30, 1996 (an increase of approximately 123%). The increase in
revenues is mainly attributable to an increase in the gross profit on sales from
the Looms Division of $137,768 from $54,880 for the six months ended June 30,
1995 to $190.648 for the six months ended June 30, 1996. Operation of the Looms
Division only commenced on May 1, 1995. In addition, revenues also increased
during 1996 by $13,652 on gross profit from oil and gas sales from a loss of
$2,458 for the six months ended June 30, 1995 to a gross profit of $11,204 in
the same period in 1996 because of increases in both oil and gas prices and the
disposal of working interests in 7 gas wells, effective January 1, 1996 which
wells were operating at a gross loss in 1995. Partially offsetting these
increases was a decrease in 1996 of $37,882 in interest income and royalties
earned from loans made by the Company pursuant to a Joint Venture Agreement
which the Company entered into in May 1993, which loans were repaid as of June
30, 1995.
The Company's expenses increased from $191,089 for the six months ended June 30,
1995 to $413,884 for the comparable 1996 period (and increase of approximately
117%) primarily due to an increase of $137,312 in selling expenses
(approximately 62% of the total expense increase) for the Looms Division in the
1996 half year versus only two months of operations of the Looms Division in the
comparable 1995 period. To a lesser extent, the overall increase was due to
higher general and administrative expenses from $116,654 for the six months
ended June 30, 1996 to $202,137 for the six months ended June 30, 1996 (an
increase of 73% approximately). Those general and administrative expenses that
accounted for the increase were, primarily, accounting and administrative fees,
factor's fees and interest expense relating to the operation of the Looms
Division.
Net loss increased by $111,247 from $100,705 for the six months ended June 30,
1995 to $211,952 for the six months ended June 30, 1996. Of this increase,
$37,882 (approximately 34%) is due to the reduction of revenues from interest
income and royalties during the six months ended June 30, 1996. The remaining
net loss increase can be attributed to the increase in general and
administrative expenses ($85,483) associated with the operations of the Looms
Division during the six months ended June 30, 1996, partially offset by the
increase in gross profit of the Oil & Gas Division ($13,662).
Results of Operations: Three months ended June 30, 1996 as compared to June 30,
1995
The Company's revenue, inclusive of interest income and royalties, decreased
from $71,885 for the three months ended June 30, 1995 to $42,896 for the three
months ended June 30, 1996 ( a decrease of approximately 40%). The decrease in
revenues is attributable to a decrease in the gross profit on sales from the
Looms Division of $25,058 from $54,880 for the three months ended June 30, 1995
to $29,822 for the three months ended June 30, 1996. In addition, revenues
declined in 1996 by $17,425 for interest income and royalties earned from loans
made by the Company pursuant to a Joint Venture Agreement which the Company
entered into in May 1993, which loans were repaid as of June 30, 1995. Partially
offsetting these revenue decreases was an increase during the quarter ended
8
<PAGE>
June 30, 1996 of $13,494 from the gross profit on sales of oil and gas, from a
loss of $500 for the quarter ended June 30, 1995 to a gross profit of $12,994
during 1996 because of increases in both oil and gas prices and the disposal of
working interest in 7 gas wells effective January 1, 1996, which wells were
operating at a gross loss in 1995.
The Company's expenses increased from $141,050 for the three months ended June
30, 1995 to $190,890 for the comparable 1996 period (an increase of
approximately 35%) primarily due to an increase of $28,212 in selling expenses
(approximately 57% of the total expense increase) for the Looms Division in the
1996 second quarter versus only two months of operations of the Looms Division
in the Company's 1995 period. To a lesser extent, the overall increase was due
to higher general and administrative expenses from $66,615 for the three months
ended June 30, 1995 to $88,243 for the three months ended June 30, 1996 (an
increase of 32% approximately). Those general and administrative expenses that
accounted for the increase were, primarily, accounting and administrative fees,
factor's fee and interest expense relating to the operation of the Looms
Division.
Net loss increase by $78,829 from $69,165 for the quarter ended June 30, 1995 to
$147,994 for the quarter ended June 30, 1996. Of this increase, $28,989
(approximately 37%) is due to declines in revenue: $25,058 on gross profit from
Looms Division sales; $17,425 from interest income and royalties; partially
offset by an increase; $13,494 in gross profit on oil and gas sales. The
remaining net loss increase is primarily attributable to the $28,212 increase in
selling expenses and the $21,628 increase in general and administrative expenses
both associated with the Looms Division.
Liquidity and Capital Resources
The primary source of the Company's working capital during the first half of
1996 was cash from operations from the sale of woven fabrics produced by the
Company's Looms Division and, to a lesser extent, from the sale of oil and gas
from the Company's ownership interest in oil and gas wells. The Company's
unrestricted cash and cash equivalents decreased from $26,296 at December 31,
1995 to $7,068 at June 30, 1996.
In connection with the operation of the Looms Division, the Company entered into
a Factoring Agreement with NationsBanc Commercial Corporation ("NationsBanc") as
of June 1, 1995 (the "Factoring Agreement"). Pursuant to the terms of the
Factoring Agreement, The Company, among other things, (i) has agreed to (a)
assign to NationsBanc its interest in all receivables derived from the sale of
the woven fabrics produced by the Looms Division and (b) pay NationsBanc a
commission of three quarters of one percent of the gross amount on such
receivables, with a minimum annual commission of $50,000 and (ii) may (a)
request advances up to ninety-five percent of the net purchase price of the
receivables and (b) pay interest on such advances at the rate of one-half of one
percent above NationsBanc's prime rate.
The initial term of the Factoring Agreement expired on June 1, 1996, but has
been extended to December 1, 1996 by the parties to allow for modifications in
the above terms, the negotiations for which are not yet complete.
9
<PAGE>
Seasonality
The Company's Looms Division business is seasonal and typically realizes higher
revenues and operating income in the first and fourth calendar quarters. Such
seasonality, taking into account the standard lead time required by the fashion
industry to manufacture apparel, would correspond respectively to the autumn and
spring retail selling seasons.
The Company's oil and gas business is not seasonal, except that sales of natural
gas peak during the winter heating season.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8 - K.
(a) The following exhibit is included herein:
Exhibit 27 - Financial Data Schedule Article 5 included for
Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
purposes only. This Schedule contains summary financial
information extracted from the balance sheets and statements of
operations and is qualified in its entirety by reference to such
financial statements.
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.
LEVCOR INTERNATIONAL, INC.
--------------------------
Date August 12, 1996 Robert A. Levinson
-----------------------
President
Date August 12, 1996 Rudolph E. Bremser
-----------------------
Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
for the Quarterly Period Ended June 30, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,068
<SECURITIES> 0
<RECEIVABLES> 102,916
<ALLOWANCES> 0
<INVENTORY> 1,266,605
<CURRENT-ASSETS> 1,376,864
<PP&E> 878,498
<DEPRECIATION> 847,522
<TOTAL-ASSETS> 1,407,840
<CURRENT-LIABILITIES> 613,094
<BONDS> 1,218,400
0
0
<COMMON> 964,394
<OTHER-SE> (1,388,048)
<TOTAL-LIABILITY-AND-EQUITY> 1,407,840
<SALES> 1,452,277
<TOTAL-REVENUES> 201,932
<CGS> 1,250,425
<TOTAL-COSTS> 1,664,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,450
<INCOME-PRETAX> (211,952)
<INCOME-TAX> 0
<INCOME-CONTINUING> (211,952)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,952)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
