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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 3/31/98
/ / 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.
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(Exact Name or 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
--------------- ----------------
As of May 12, 1998, 1,743,499 shares of the issuer's common stock,
par value $.56 per share, were outstanding.
Transitional Small Business Disclosure Format(check one): Yes No X
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LEVCOR INTERNATIONAL, INC.
INDEX
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Balance Sheet as of March 31, 1998 (Unaudited) 1
Statements of Operations and Deficit for the
Three Months Ended March 31, 1998 and
March 31, 1997 (Unaudited) 2
Statements of Cash Flows for the
Three Months Ended March 31, 1998 and
March 31, 1997 (Unaudited) 3
Notes to Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 5, 6
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 8
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LEVCOR INTERNATIONAL, INC.
BALANCE SHEET
March 31, 1998
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalent $ 8,508
Accounts receivable 24,681
Due from factor 1,300,385
Inventories 1,197,249
Prepaid expenses 7,081
---------
Total current assets 2,537,904
PLANT AND EQUIPMENT, net of accumulated 18,171
depreciation of $2,539
OIL AND GAS PROPERTIES (using full cost 22,540
method), net of accumulated depletion
and depreciation of $873,276
INTANGIBLE ASSETS net of accumulated 12,297
amortization of $1,208 ----------
$2,590,912
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $2,209,002
Current maturities of long-term debt 282,800
----------
Total current liabilities 2,491,802
LONG TERM DEBT, less current maturities 565,600
DUE TO OFFICER 670,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - par value $.56 per share; authorized, 975,594
15,000,000 shares; outstanding, 1,743,499 shares
Capital in excess of par value 5,002,366
Accumulated deficit (7,114,450)
-----------
(1,136,490)
-----------
$ 2,590,912
===========
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 Three Months Ended March 31, 1998 1997
---- ----
<S> <C> <C>
Woven Fabrics Division sales $5,586,201 $814,713
Less: cost of sales 4,889,482 644,765
--------- -----------
Gross profit-Woven Fabrics Division 696,719 169,948
Oil and gas sales 9,101 13,079
Less: cost of sales 9,066 12,381
----------- ------------
Gross profit-Oil and Gas 35 698
----------- ------------
Total Gross Profits 696,754 170,646
Selling expenses: Woven Fabrics Division
Salaries, benefits and payroll taxes 214,307 19,820
Commissions 64,578 10,607
Other selling expenses 65,167 21,434
------ ------
344,052 51,861
General and administrative expense
Salaries, benefits and payroll taxes 14,134 13,527
Accounting and administrative fees 32,692 14,648
Audit fees 8,000 8,000
Directors' fees and expenses 1,250 1,250
Factor's fees 35,867 12,783
Insurance 1,590 3,600
Interest expense 92,795 47,941
Legal fees 2,500 2,500
Transfer agent fees 1,058 1,050
Other business taxes 10 2,834
Other expenses 25,653 3,180
------ -----
Total general and administrative expenses 215,549 111,313
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Total expense 559,601 163,174
------- -------
Net earnings 137,153 7,472
Accumulated deficit - beginning of year (7,251,603) (6,900,333)
---------- ----------
Accumulated deficit - end of quarter (7,114,450) ($6,892,861)
========== -----------
Average number of shares outstanding 1,738,499 1,728,499
Net earnings per common share $0.08 *****
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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LEVCOR INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1998 1997
<S> <C> <C>
Cash flows from operating activities
Net profit $137,153 $7,472
Adjustments to reconcile net earnings to net
cash used in operating activities
Depletion and depreciation 4,088 3,294
Services paid in common stock 5,000 5,000
Changes in operating assets and liabilities, net of
assets acquired
Accounts receivable (15,028) 5,455
Due from factor (773,193) 201,668
Inventories 829,339 87,998
Prepaid expenses 379 6,942
Accounts payable and accrued expenses (218,230) (300,414)
--------- --------
Net cash used in operating activities (30,492) 17,415
--------- --------
Cash flows from investing activities
Purchase of property and equipment and intangible assets (3,043) --
Net cash used in investing activities (3,043) --
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (33,535) 17,415
Cash and cash equivalents at beginning of year 42,043 4,904
------ -----
Cash and cash equivalents at end of quarter $8,508 $22,319
====== =======
Supplemental disclosures of cash flow information:
Cash paid during the quarter for Interest $92,795 $25,423
</TABLE>
The accompanying notes are an integral part of these statements.
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LEVCOR INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 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 Pronouncements
Earnings 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 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.
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
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expected to have 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:
Three months ended March 31, 1998 as compared to three months ended
March 31, 1997.
The Company's gross profits for the three months ended March 31, 1998
were $696,754, an increase of $526,108 or 308%, from $170,646 for the same
period in 1997. Such increase was attributable to the net of (i) an increase of
$526,771 in sales, less the cost of goods sold, from the Woven Fabrics Division
in the first quarter of 1998 compared to the same period in 1997, and (ii) a
decrease of $663 in sales, less the cost of goods sold from oil and gas
operations in the first quarter of 1998 compared to the same period in 1997.
The Company's expenses for the first quarter of 1998 were $559,601, an
increase of $396,427 or 243%, from $163,174 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 quarter of 1998 of $292,191, or 563%, compared to the
same period in 1997, and (ii) general and administrative expenses in
the first quarter of 1998 of $104,236, or 94% compared to the same period in
1997.
As a result of the foregoing, the Company reflected a net profit of
$137,153 in the first three months of 1998 compared to a net profit of $7,472
for the same period in 1997.
Liquidity and Capital Resources
The primary source of the Company's working capital during
the first quarter of 1998 was derived from proceeds from the sale
of woven fabrics produced by the Company's Woven Fabrics Division and, to a
lesser extent, 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 March 31, 1998 was $8,508, a decrease of $33,535 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 the 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
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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 of the woven fabric inventory from
Andrex Industries Corp. ("Andrex"), the Company issued a promissory note to
Andrex in May 1996 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 approximately $283,000 to
Andrex. In order to meet the $282,800 debt payments that were due on May 1, 1996
and May 1, 1997, Robert A. Levinson, the Chief Executive Officer of the Company,
made a loan to the Company on each such date of $370,000 and $300,000,
respectively, at a rate of 6% per annum. No repayment date has yet been set for
either of 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 the woven fabric product. Although there can be no
assurances that these measures will be successful, the Company believes that its
current operations and the financial 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.
6
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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
March 31, 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.
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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 May 13, 1998 /s/ Robert A. Levinson
--------------- ----------------------
Robert A. Levinson
President
Date May 13, 1998
--------------- /s/ Rudolph E. Bremser
----------------------
Rudolph E. Bremser
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Form 10-QSB for the Quarterly Period Ended March 31, 1998, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,508
<SECURITIES> 0
<RECEIVABLES> 1,325,066
<ALLOWANCES> 0
<INVENTORY> 1,197,249
<CURRENT-ASSETS> 2,537,904
<PP&E> 930,031
<DEPRECIATION> 877,023
<TOTAL-ASSETS> 2,590,912
<CURRENT-LIABILITIES> 2,491,802
<BONDS> 1,235,600
0
0
<COMMON> 975,594
<OTHER-SE> (2,112,084)
<TOTAL-LIABILITY-AND-EQUITY> 2,590,912
<SALES> 5,595,302
<TOTAL-REVENUES> 696,754
<CGS> 4,898,548
<TOTAL-COSTS> 5,458,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,795
<INCOME-PRETAX> 137,153
<INCOME-TAX> 0
<INCOME-CONTINUING> 137,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,153
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
