<PAGE>
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 6/30/98
/ / 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.
(Exact Name or Small Business Issuer as Specified in Its Charter)
Delaware 06-0842701
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1071 Avenue of the Americas, New York, NY 10018
(Address of Principal Executive Offices)
(203) 264-7428
(Issuer's Telephone Number, Including Area Code)
(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 ___
As of August 12, 1998, 1,764,299 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.
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Balance Sheet as of June 30, 1998 (Unaudited) 1
Statements of Operations for the
Six Months Ended June 30, 1998 and
June 30, 1997 (Unaudited) 2
Statements of Operations for the
Three Months Ended June 30, 1998 and
June 30, 1997 (Unaudited) 3
Statements of Cash Flows for the
Six Months Ended June 30, 1998 and
June 30, 1997 (Unaudited) 4
Notes to Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 6
Item 4. Submission of Matters to a Vote of
Security Holders 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 27 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LEVCOR INTERNATIONAL, INC.
BALANCE SHEET
June 30, 1998
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalent $ 15,496
Accounts receivable 18,028
Due from factor 54,883
Inventories 1,320,987
Prepaid expenses 16,655
-----------
Total current assets 1,426,049
PLANT AND EQUIPMENT, net of accumulated 18,843
depreciation of $3,486
OIL AND GAS PROPERTIES (using full cost 20,526
method), net of accumulated depletion
and depreciation of $875,290
INTANGIBLE ASSETS net of accumulated
amortization of $1,998 14,046
-----------
$1,479,464
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $1,545,645
Current maturities of long-term debt 282,800
-----------
Total current liabilities 1,828,445
LONG TERM DEBT, less current maturities 282,800
DUE TO OFFICER 720,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - par value $.56 per share; authorized 987,242
Capital in excess of par value 4,998,280
Accumulated deficit (7,337,303)
-----------
(1,351,781)
-----------
$1,479,464
===========
The accompanying notes are an integral part of this statement.
1
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LEVCOR INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended June 30 1998 1997
-------------------- --------------------
<S> <C> <C>
Woven Fabrics Division sales $ 7,143,354 $ 1,201,573
Less: cost of sales 6,293,666 1,003,781
-------------------- --------------------
Gross profit - Woven Fabrics Division 849,688 197,792
Oil and gas sales 17,118 23,283
Less: cost of sales 16,757 20,509
-------------------- --------------------
Gross profit - Oil and Gas 361 2,774
-------------------- --------------------
Total Gross Profits 850,049 200,566
-------------------- --------------------
Selling expenses: Woven Fabrics Division
Salaries, benefits and payroll taxes 418,053 41,545
Commissions 78,582 20,454
Other selling expenses 120,265 34,014
-------------------- --------------------
Total selling expenses 616,900 96,013
General and administrative expense
Salaries, benefits and payroll taxes 27,929 27,194
Accounting and administrative fees 29,300 29,229
Audit fees 16,000 16,000
Directors' fees and expenses (6,250) 2,500
Factor's fees 51,728 18,000
Insurance 6,529 7,200
Interest expense 141,775 86,626
Legal fees 7,563 9,229
Transfer agent fees 2,108 2,100
Shareholders communications 14,460 ---
Other business taxes 2,280 2,843
Other expenses 25,427 6,674
-------------------- --------------------
Total general and administrative expenses 318,849 207,595
-------------------- --------------------
Total expense 935,749 303,608
-------------------- --------------------
Net (loss) (85,700) (103,042)
Accumulated deficit - beginning of year (7,251,603) (6,900,333)
-------------------- --------------------
Accumulated deficit - end of quarter ($ 7,337,303) ( $ 7,003,375)
==================== ====================
Average number of shares outstanding 1,747,249 1,730,166
Net(loss) per common share ($ 0.05) ($ 0.06)
==================== ====================
</TABLE>
The accompanying notes are an integral part of this statement.
2
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LEVCOR INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended June 30 1998 1997
-------------------- --------------------
<S> <C> <C>
Woven Fabrics Division sales $ 1,557,153 $ 386,860
Less: cost of sales 1,404,184 359,016
-------------------- --------------------
Gross profit - Woven Fabrics Division 152,969 27,844
Oil and gas sales 8,017 10,204
Less: cost of sales 7,691 8,128
-------------------- --------------------
Gross profit - Oil and Gas 326 2,076
-------------------- --------------------
Total Gross Profits 153,295 29,920
-------------------- --------------------
Selling expenses: Woven Fabrics Division
Salaries, benefits and payroll taxes 203,746 21,725
Commissions 14,004 9,847
Other selling expenses 55,098 12,580
-------------------- --------------------
Total selling expenses 272,848 44,152
General and administrative expense
Salaries, benefits and payroll taxes 13,795 13,667
Accounting and administrative fees (3,392) 14,581
Audit fees 8,000 8,000
Directors' fees and expenses (7,500) 1,250
Factor's fees 15,861 5,217
Insurance 4,939 3,600
Interest expense 48,980 38,685
Legal fees 5,063 6,729
Transfer agent fees 1,050 1,050
Shareholders communications 14,460 --
Other business taxes 2,270 9
Other expenses (226) 3,494
-------------------- --------------------
Total general and administrative expenses 103,300 96,282
-------------------- --------------------
Total expense 376,148 140,434
-------------------- --------------------
Net (loss) (222,853) (110,514)
Accumulated deficit - beginning of quarter (7,114,450) (6,892,861)
-------------------- --------------------
Accumulated deficit - end of quarter ($ 7,337,303) ($ 7,003,375)
==================== ====================
Average number of shares outstanding 1,753,899 1,733,499
Net(loss) per common share ($ 0.13) ($0.06)
==================== ====================
</TABLE>
The accompanying notes are an integral part of this statement.
3
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LEVCOR INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended June 30 1998 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities $ (85,700) $ (103,042)
Net (loss)
Adjustments to reconcile (net loss) to net
cash (used in) operating activities
Depletion and depreciation 7,838 7,391
Services paid in common stock 5,000 5,000
Changes in operating assets and liabilities,
net of assets acquired
Accounts receivable (8,375) 3,670
Due from factor 472,309 201,998
Inventories 705,601 83,549
Prepaid expenses (9,195) 5,102
Accounts payable and accrued expenses (879,587) (208,575)
----------------- -----------------
Net cash provided by (used in) operating activities 207,891 (4,907)
----------------- -----------------
Cash flows from investing activities
Purchase of property and equipment and intangible assets (9,200) --
----------------- -----------------
Net cash (used in) investing activities (9,200) --
----------------- -----------------
Cash flows from financing activities
Advances from shareholder 50,000 300,000
Exercise of stock options 7,562
Payment of long term debt (282,800) (282,800)
----------------- -----------------
Net cash provided by (used in) financing activities (225,238) 17,200
----------------- -----------------
NET INCREASE / (DECREASE) IN CASH (26,547) 12,293
AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year 42,043 4,904
----------------- -----------------
Cash and cash equivalents at end of quarter $ 15,496 $ 17,197
================= =================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 141,775 $ 86,626
</TABLE>
The accompanying notes are an integral part of this statement.
4
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LEVCOR INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
NOTE 1. The accompanying financial statements of Levcor International,
Inc. (the "Company") 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, 1998 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. 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, 1997.
NOTE 2. New Accounting Pronouncement
Earnings (Loss) Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which
requires public companies to present basic earnings per share
and, if applicable, diluted earnings per share. All comparative
periods must be restated as of December 31, 1997 in accordance
with SFAS No. 128.
The computation of basic profit/(loss) per share of common stock
is based upon the weighted average number of common shares
outstanding during the period, plus (in periods in which they
have a dilutive effect) the effect of common shares contingently
issuable upon exercise of stock options. Diluted earnings per
share are considered equal to basic earnings per share for all
years presented as the effect of other potentially dilutive
securities would be antidilutive.
Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 130 ("SFAS
No. 130"), "Reporting Comprehensive Income," which is effective
for the Company's year ending December 31, 1998. The statement
addresses the reporting and displaying of comprehensive income
and its components. Earnings per share will only be reported for
net income and not for comprehensive income and its components.
Adoption of SFAS No. 130 related to disclosure within the
financial statements and is not expected to have a material
effect on the Company's financial statements.
5
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Segment Information
In June 1997, the FASB also issued Statement of Financial
Accounting Standards No. 131 ("SFAS No. 131"), "Disclosure About
Segments of an Enterprise and Related Information," which is
effective for the Company's year ending December 31, 1998. SFAS
No. 131 changes the way public companies report information about
segments of their business in their financial statements and
requires them to report selected segment information in their
quarterly reports. Adoption of SFAS No. 131 relates to disclosure
within the financial statements and is not expected to have a
material effect on the Company's financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Results of Operations:
Six months ended June 30, 1998 as compared to six months ended June
30, 1997.
The Company's gross profits for the six months ended June 30, 1998
were $850,049, an increase of $649,483, or 324%, from $200,566 for the same
period in 1997. Such increase was attributable to the net of (i) an increase
of $651,896 in sales, less the cost of goods sold, from the Woven Fabrics
Division in the first half of 1998 compared to the same period in 1997, and
(ii) a decrease of $2,413 in sales, less the cost of goods sold, from oil and
gas operations in the first half of 1998 compared to the same period in 1997.
The Company's expenses for the first half of 1998 were $935,749, an
increase of $632,141, or 208%, from $303,608 in the same period in 1997. Such
increase was due to an increase in (i) selling expenses of the Woven Fabrics
Division in the first half of 1998 of $520,887, or 543%, compared to the same
period in 1997, and (ii) general and administrative expenses in the first half
of 1998 of $111,254, or an increase of 54%, compared to the same period in 1997.
As a result of the foregoing, the Company reflected a net loss of
$85,700 in the first six months of 1998 compared to a net loss of $103,042 for
the same period in 1997.
Three months ended June 30, 1998 as compared to three months ended
June 30, 1997.
The Company's gross profits for the three months ended June 30, 1998
were $153,295, an increase of $123,375, or 412%, from $29,920 for the same
period in 1997. Such increase was attributable to the net of (i) an increase
of $125,125 in sales, less the cost of goods sold, from the Woven Fabrics
Division in the second quarter of 1998 compared to the same period in 1997, and
(ii) a decrease of $1,750 in sales, less the cost of goods sold, from oil and
gas operations in the second quarter of 1998 compared to the same period in
1997.
6
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The Company's expenses for the second quarter of 1998 were $376,148,
an increase of $235,714, or 168%, from $140,434 in the same period in 1997.
Such increase was due to an increase in (i) selling expenses of the Woven
Fabrics Division in the second quarter of 1998 of $228,696, or 518%, compared
to the same period in 1997, and (ii) general and administrative expenses in
the second quarter of 1998 of $7,018, or an increase of 7%, compared to the same
period in 1997.
As a result of the foregoing, the Company reflected a net loss of
$222,853 in the second three months of 1998 compared to a net loss of $110,514
for the same period in 1997.
Liquidity and Capital Resources
The primary source of the Company's working capital during 1997
and 1998 was derived from proceeds from the sale of woven fabrics produced
by the Company's Woven Fabrics Division and, to a lesser extent, from proceeds
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 at June 30, 1998
was $15,496, a decrease of $26,547 from $42,043 at December 31, 1997.
In connection with the operation of the Woven Fabrics Division, the
Company entered into a Discount Factoring Agreement with Congress Talcott
Corporation ("Congress Talcott") as of November 14, 1997 (the "Congress Talcott
Factoring Agreement"). Pursuant to the terms of the Congress Talcott Factoring
Agreement, the Company, among other things: (i) has agreed to (a) assign to
Congress Talcott its interest in all receivables derived from the sale of woven
fabrics produced by the Woven Fabrics Division, and (b) pay Congress Talcott a
commission of 0.6% of the gross amount on such receivables, with a minimum
commission of $4,000 for each and every month of the term thereof; and (ii) may
(a) request advances up to 90% of the net purchase price of the receivables, and
(b) pay interest on such advances at the rate of 0.5% above CoreStates Bank,
N.A.'s prime rate for the term thereof. The Congress Talcott Factoring Agreement
has an initial term expiration date of November 14, 1998 and is automatically
renewed for one-year periods thereafter, unless terminated on the initial term
expiration date (or any anniversary thereof) by either party giving not less
than sixty days' prior written notice.
In connection with the purchase in 1996 of the woven fabric inventory
from Andrex Industries Corp. ("Andrex"), the Company issued a promissory note to
Andrex which bears interest at the rate of 6% per annum, pursuant to which the
Company, commencing on May 1, 1996 and continuing through May 1, 2000, is
required to make five annual debt payments of $282,800 to Andrex. In order to
meet the $282,800 debt payments that were due on May 1, 1996, May 1, 1997 and
May 1, 1998, Robert A. Levinson, the Chief Executive Officer of the Company,
made loans to the Company on such dates of $370,000, $300,000 and $50,000,
respectively, which loans bear interest at a rate of 6% per annum. No repayment
date has yet been set for these loans. Mr. Levinson has also agreed to continue
to personally support the Company's cash requirements to enable it to meet its
current obligations through December 31, 1998. The Company also plans to
continue to aggressively market and sell its woven fabric products. Although
there can be no assurances that these measures will be successful, the Company
believes that its current operations and the financial
7
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arrangements described above will provide sufficient liquidity to fund the
Company's operations for 1998.
Seasonality
The Company's Woven Fabrics Division business is seasonal and
typically realizes higher revenues and operating income in the first and
fourth calendar quarters, which, considering the standard lead time required by
the fashion industry to manufacture apparel, would correspond respectively to
the autumn and spring retail selling seasons.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting was held on June 17, 1998. At that
meeting, Robert A. Levinson, John McConnaughy and Edward H. Cohen
were elected to serve as directors of the Company. The results
of the vote were:
For Against Abstain
------- ------- -------
Robert A. Levinson 601,242 0 517
John McConnaughy 601,242 0 517
Edward H. Cohen 601,242 0 517
A vote was also held to ratify the selection of Grant
Thornton, LLP as auditors for the Company for the year ending
December 31, 1998. The results of the vote were:
For Against Abstain
------- ------- -------
594,596 760 10,830
8
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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 deficit as of and for the three months ended
June 30, 1998 and is qualified in its entirety by reference to such financial
statements.
(b) No reports on Form 8-K were filed during the quarter for which this report
is being filed.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LEVCOR INTERNATIONAL, INC.
Date August 14, 1998 /s/ Rudolph E. Bremser
--------------- --------------------------
Rudolph E. Bremser
Treasurer and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Form 10-QSB for the Quarterly Period Ended June 30, 1998, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,196
<SECURITIES> 0
<RECEIVABLES> 72,911
<ALLOWANCES> 0
<INVENTORY> 1,320,987
<CURRENT-ASSETS> 1,426,049
<PP&E> 937,673
<DEPRECIATION> (884,258)
<TOTAL-ASSETS> 1,479,464
<CURRENT-LIABILITIES> 1,828,445
<BONDS> 1,002,800
0
0
<COMMON> 987,242
<OTHER-SE> (2,339,023)
<TOTAL-LIABILITY-AND-EQUITY> 1,479,464
<SALES> 7,160,462
<TOTAL-REVENUES> 850,049
<CGS> 6,360,423
<TOTAL-COSTS> 7,346,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,775
<INCOME-PRETAX> (85,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (85,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,700)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
