SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 2, 1999
-----------------
LEVCOR INTERNATIONAL, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
811-3584 06-0842701
- ------------------------ ------------------------------------
(Commission File Number) (IRS Employer Identification Number)
1071 Avenue of the Americas, New York, NY 10018
-----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 264-7428
--------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 2, 1999, Levcor International, Inc. (the "Registrant")
entered into an Asset Purchase Agreement, dated September 2, 1999 (the "Purchase
Agreement"), with Andrex Industries Corp. ("Andrex"), a New York corporation,
pursuant to which the Registrant purchased (1) Andrex's inventory; (2) Andrex's
machinery and equipment (the "Machinery and Equipment"); (3) Andrex's furniture,
fixtures and supplies located at 1071 Avenue of the Americas, New York, New York
10018; (4) Andrex's sales orders; and (5) Andrex's trade name "Andrex Knits".
The Registrant plans to sell the Machinery and Equipment.
The purchase price comprised: (1) cash in the amount of $660,000; (2) a
promissory note ("Promissory Note 1"), in the principal amount of $282,450; and
(3) a promissory note ("Promissory Note 2"), in the principal amount equal to
the book value as of July 1, 1999 of the Inventory transferred to the
Registrant, which promissory note is to be delivered to Andrex promptly
following the valuation of the Inventory. Promissory Note 1 and Promissory Note
2 will both bear interest at 6% per annum.
The Registrant will file an Amended Form 8-K when it completes the
valuation of the Inventory and determines the principal amount of Promissory
Note 2.
The Purchase Agreement was filed as an exhibit to the Registrant's Current
Report on Form 8-K filed on September 17, 1999. A copy of the Registrant's press
release announcing the effectiveness of the acquisition was filed as an exhibit
to the Registrant's Current Report on Form 8-K filed on September 17, 1999.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Andrex:
1. Balance Sheet of Andrex as of September 27, 1998, together
with the Statement of Operations and Retained Earnings and
Cash Flows for the years ended September 27, 1998 and
September 28, 1997 and the report thereon by Grant Thornton
LLP, independent accountants.
2. Unaudited Balance Sheet of Andrex as of June 30, 1999 and the
related Statement of Operations and Retained Earnings and Cash
Flows for the nine-month periods ended June 30, 1999 and 1998.
(b) Pro Forma Financial Information:
1. Unaudited Pro Forma Consolidated Condensed Balance Sheet of
the Registrant and Andrex as of June 30, 1999.
2. Unaudited Pro Forma Consolidated Condensed Statement of
Operations of the Registrant and Andrex for the six-month
period ended June 30, 1999 and the year ended December 31,
1998.
(c) Exhibits:
1. Asset Purchase Agreement, dated September 2, 1999, between
Andrex and the Registrant. (filed as Exhibit 1 to the
Registrant's Current Report on Form 8-K filed on September 17,
1999).
2. Press Release, dated September 7, 1999 (filed as Exhibit 2 to
the Registrant's Current Report on Form 8-K filed on September
17, 1999).
3
<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 hereunto duly authorized.
LEVCOR INTERNATIONAL, INC.
By: Robert A. Levinson
-----------------------------
Name: Robert A. Levinson
Title: Chairman of the Board,
President and Secretary
Date: November 16, 1999
4
<PAGE>
INDEX OF FINANCIAL STATEMENTS OF ANDREX INDUSTRIES CORP.
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets F-3
Statements of Operations and Retained Earnings F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7 - F-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Andrex Industries Corp.
We have audited the accompanying balance sheet of Andrex Industries Corp. as of
September 27, 1998 and the related statements of operations and retained
earnings, and cash flows for the years ended September 27, 1998 and September
28, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Andrex Industries Corp. as of
September 27, 1998 and the results of its operations and its cash flows for the
years ended September 27, 1998 and September 28, 1997 in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
January 15, 1999 (except for
Note J-2, for which the date is
November 15, 1999)
F-2
<PAGE>
Andrex Industries Corp.
BALANCE SHEETS
June 30, September 27,
ASSETS 1999 1998
---------- ------------
(unaudited)
CURRENT ASSETS
Cash $ 31,000
Accounts receivable, including $1,376,000 and
$3,363,000 due from factors - net of allowances
for doubtful accounts and sales returns and
allowances of $294,000 and $221,000 for
1999 and 1998, respectively $1,263,000 2,720,000
Amounts due from related party 283,000 480,000
Inventories
Raw materials and supplies 174,000
Work-in-process 568,000
Finished goods 359,000
----------
2,081,000 1,101,000
---------- ----------
Other assets 73,000 75,000
Notes receivable - current portion 21,000 21,000
---------- ----------
Total current assets 3,721,000 4,428,000
PROPERTY, PLANT AND EQUIPMENT - at cost
Land 8,000 8,000
Building and improvements 661,000 661,000
Machinery and equipment 3,207,000 3,231,000
---------- ----------
3,876,000 3,900,000
Less accumulated depreciation and amortization 3,081,000 2,889,000
---------- ----------
795,000 1,011,000
NOTES RECEIVABLE - LONG-TERM 5,000 710,000
OTHER ASSETS
---------- ----------
$4,521,000 $6,149,000
========== ==========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Andrex Industries Corp.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 27,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Cash overdraft $ 120,000
Accounts payable, accrued expenses and
other current liabilities 2,013,000 $ 1,568,000
Loan payable 900,000
Current maturities of long-term obligations 605,000
----------- -----------
Total current liabilities 2,133,000 3,073,000
LONG-TERM OBLIGATIONS 448,000 282,000
----------- -----------
2,581,000 3,355,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized, 40,000 shares;
issued and outstanding, 30,000 shares 1,000
Retained earnings 5,987,000 6,684,000
Treasury stock, at cost - 14,433 shares (4,048,000) (3,890,000)
----------- -----------
1,940,000 2,794,000
----------- -----------
$ 4,521,000 $ 6,149,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Andrex Industries Corp.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Nine months ended Year ended
---------------------------- ----------------------------
June 30, June 30, September 27, September 28,
1999 1998 1998 1997
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Gross sales $ 11,407,000 $ 19,193,000 $ 25,095,000 $ 26,776,000
Sales returns and allowances (349,000) (614,000) (813,000) (1,291,000)
------------ ------------ ------------ ------------
Net sales 11,058,000 18,579,000 24,282,000 25,485,000
Cost of goods sold 9,156,000 15,399,000 20,215,000 21,263,000
------------ ------------ ------------ ------------
1,902,000 3,180,000 4,067,000 4,222,000
Costs and expenses
Selling 1,123,000 1,261,000 1,268,000 1,261,000
Design 453,000 514,000 495,000 411,000
Production 236,000 172,000 178,000 187,000
General and administrative 967,000 1,031,000 1,103,000 1,325,000
Environmental 125,000 125,000 150,000 148,000
------------ ------------ ------------ ------------
2,904,000 3,103,000 3,194,000 3,332,000
------------ ------------ ------------ ------------
Income (loss) from operations (1,003,000) 77,000 873,000 890,000
------------ ------------ ------------ ------------
Other income (expense)
Interest expense, less interest income (183,000) (463,000) (596,000) (812,000)
Gain on sale of fixed assets 26,000 586,000
Other income 110,000 93,000 114,000 87,000
------------ ------------ ------------ ------------
(73,000) 370,000 (456,000) (139,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) (1,076,000) (293,000) 417,000 751,000
Retained earnings at beginning of year 6,684,000 6,267,000 6,267,000 5,516,000
------------ ------------ ------------ ------------
Retained earnings at end of year $ 5,608,000 $ 5,974,000 $ 6,684,000 $ 6,267,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Andrex Industries Corp.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended Year ended
-------------------------- ---------------------------
June 30, June 30, September 27, September 28,
1999 1998 1998 1997
----------- ----------- ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (696,000) $ 101,000 $ 417,000 $ 751,000
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities
Depreciation and amortization 3,081,000 2,858,000 146,000 374,000
Gain on sale of fixed assets (26,000) (586,000)
Changes in operating assets and
liabilities
Accounts receivable 1,457,000 (1,973,000) 570,000 (1,660,000)
Amounts due from related party 197,000 (299,000) (80,000) (310,000)
Inventories (980,000) (2,587,000) 719,000 1,099,000
Other assets 2,000 (73,000) (34,000) 17,000
Accounts payable, accrued expenses
and other current liabilities 445,000 1,413,000 (281,000) (651,000)
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 3,506,000 (560,000) 1,431,000 (966,000)
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchases of property, plant and equipment (2,865,000) (2,874,000) (244,000) --
Proceeds from sale of fixed assets 182,000 840,000
Proceeds from notes receivable 705,000 875,000 170,000 300,000
----------- ----------- ----------- -----------
Net cash provided by investing activities (2,160,000) (1,999,000) 108,000 1,140,000
----------- ----------- ----------- -----------
Cash flows from financing activities
Net (payments for) additions to short-term
obligations (900,000) 1,576,000 (500,000) 1,400,000
Payments for reacquisition of treasury stock (158,000)
(Payments for) Additions of long-term
obligations (439,000) 196,000 (1,095,000) (1,509,000)
----------- ----------- ----------- -----------
Net cash used in financing activities (1,497,000) 1,772,000 (1,595,000) (109,000)
----------- ----------- ----------- -----------
NET (DECREASE) INCREASE
IN CASH (151,000) (788,000) (56,000) 65,000
Cash at beginning of year 31,000 87,000 87,000 22,000
----------- ----------- ----------- -----------
Cash at end of year $ (120,000) $ (701,000) $ 31,000 $ 87,000
=========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 189,000 $ 440,000 $ 283,000 $ 660,000
=========== =========== =========== ===========
Income taxes $ 15,000 $ 13,000 $ 23,000 $ 20,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Andrex Industries Corp.
NOTES TO FINANCIAL STATEMENTS
September 27, 1998 and September 28, 1997
(Information relating to June 30, 1999 and 1998 is unaudited)
NOTE A - NATURE OF OPERATIONS
Andrex Industries Corp. (the "Company") manufactures and markets knit
fabric to apparel manufacturers primarily located throughout the United
States and Canada.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1. Property, Plant and Equipment
Depreciation is provided principally by the straight-line method
over estimated useful lives as follows:
Building and improvements 10 to 40 years
Machinery and equipment 4 to 10 years
2. Inventories
Inventories are stated at the lower of cost (principally average
cost) or current value based on prevailing market prices.
3. Income Taxes
Deferred income taxes are recognized for tax consequences of
temporary differences, principally depreciation and inventory
capitalization, by applying enacted statutory tax rates applicable
for years in which taxes are expected to be paid or recovered to
differences between the financial reporting and the tax bases of
existing assets and liabilities.
4. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions in determining the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-7
<PAGE>
Andrex Industries Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
September 27, 1998 and September 28, 1997
(Information relating to June 30, 1999 and 1998 is unaudited)
NOTE B (continued)
5. Unaudited Interim Financial Statements
The accompanying financial information as of the nine months ended
June 30, 1999 and 1998, including such information in the notes to
financial statements, is unaudited. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included.
Operating results for any interim period are not necessarily
indicative of the results of any other interim period or for an
entire year.
NOTE C - ACCOUNTS RECEIVABLE FACTORED AND CREDIT AGREEMENT
Under the Company's factoring agreement, the factor purchases certain of
the Company's trade accounts receivable and assumes substantially all
credit risks with respect to such accounts.
On January 13, 1997, the Company entered into an agreement with a bank to
provide a line of credit facility of up to $5,000,000 based upon 90% of
eligible factored accounts receivable with a $1,000,000 overdraft
facility. The advances up to 90% of the factored accounts receivable bear
interest at the bank's prime rate plus 3/4%. The overdraft facility bears
interest at the bank's prime rate plus 1-1/4%. These advanced amounts were
due on demand or upon expiration on December 31, 1997. The notes are
collateralized by factored and nonfactored accounts receivable balances
and machinery and equipment. On January 21, 1998, the Company and the bank
agreed on the terms for the renewal of the line of credit through January
31, 1999. Under the new terms, the interest rate on the advances up to 90%
of the factored accounts receivable is the bank's prime rate plus 1/4%.
NOTE D - NOTE RECEIVABLE
On May 30, 1995, the Company entered into an asset purchase agreement,
effective May 1, 1995, with Levcor International, Inc. ("Levcor"),
formerly Pantepec International, Inc., to sell all of its woven inventory
for $1,414,000. The inventory sold constitutes substantially all of the
inventory previously used by the Company in the operation of its woven
fabrics division. In conjunction with the sale of the
F-8
<PAGE>
Andrex Industries Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
September 27, 1998 and September 28, 1997
(Information relating to June 30, 1999 and 1998 is unaudited)
NOTE D (continued)
inventory, the Company recorded a note receivable from Levcor amounting to
$1,414,000. The note bears interest at 6% per annum and is due in five
annual installments of $282,800, beginning May 15, 1996. The chief
executive officer and director of Levcor was formerly the chief executive
officer and director of the Company, and the president and director of the
Company was formerly a director of Levcor. The note is guaranteed by the
Chief Executive Officer of Levcor.
The Company entered into an "Occupancy and Use Agreement" with Levcor,
whereby the Company provides office space and performs certain
administrative and accounting functions for an annual fee of $110,000.
Amounts due from Levcor, including the note receivable and interest
receivable, were $907,000 at September 27, 1998 and $1,248,000 at
September 28, 1997, respectively, and $432,000 and $739,000 at June 30,
1999 and 1998,respectively. Management fee income was $96,000 and $55,000
for fiscal years 1998 and 1997, respectively, and $55,000 for each of the
nine-month periods ended June 30, 1999 and 1998.
NOTE E - LONG-TERM OBLIGATIONS
1. On May 1, 1995, the Company issued three 6% nonnegotiable promissory
notes in the aggregate amount of $3,200,000 for the purchase of
12,000 shares of its common stock from the former chief executive
officer. These notes consist of the following:
a. A promissory note in the principal amount of $1,000,000,
payable in 16 quarterly payments of $62,500, beginning August
1, 1995.
b. A promissory note in the principal amount of $786,000, payable
in one lump-sum payment on November 1, 1997. However, payments
of $696,000 and $90,000 were made during 1998 and 1997,
respectively, in satisfaction of the note.
c. A promissory note in the principal amount of $1,414,000,
payable in five annual installments of $282,800, beginning May
15, 1996.
All of the notes are due on demand if an event of default, as
defined in the agreements, occurs.
F-9
<PAGE>
Andrex Industries Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
September 27, 1998 and September 28, 1997
(Information relating to June 30, 1999 and 1998 is unaudited)
NOTE E (continued)
2. On December 21, 1992, the Company entered into a $87,000 promissory
note for the purchase of a computer system. The note is payable in
sixty monthly payments of $1,858, representing interest at 10.36%
and principal. The note at September 27, 1998 has been paid in full.
As of September 28, 1998, the maturity of long-term obligations is as
follows:
1999 $605,000
2000 282,000
--------
$887,000
========
NOTE F - COMMITMENTS AND CONTINGENCIES
1. The Company leases office space under the terms of an operating
lease that expires in 2002. The lease requires annual payments,
including electricity.
Future minimum payments under noncancellable operating leases
consisted of the following at September 28, 1997:
Operating
leases
---------
1999 $243,000
2000 225,000
2001 225,000
2002 56,000
---------
$749,000
=========
Rent expense, including escalation provisions was $282,000 and
$270,000 in 1998 and 1997, respectively, and $146,000 and $144,000
for the nine-month periods ended June 30, 1999 and 1998.
F-10
<PAGE>
Andrex Industries Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
September 27, 1998 and September 28, 1997
(Information relating to June 30, 1999 and 1998 is unaudited)
NOTE F (continued)
2. In 1991, the Company received a notice of violation issued by the
State of North Carolina Department of Environment, Health and
Natural Resources for a plant owned by the Company in that state.
During 1998 and 1997, expenses were approximately $150,000 and
$148,000, respectively, and $125,000 for each of the nine-month
periods ended June 30, 1999 and 1998, for the estimated cost of an
environmental cleanup of that property. The potential additional
costs related to this matter and the possible impact on future
operations cannot be determined at this time; nevertheless, the
Company does not believe, based upon the information available at
this time, that the outcome of this matter will have a material
adverse effect on its financial position.
NOTE G - CONCENTRATION OF CREDIT RISK
1. The Company's nonfactored accounts receivable are due from customers
principally in the textile and apparel industry located throughout
the United States. Credit is extended based upon an evaluation of
the customer's financial condition and generally does not require
collateral. Credit losses are provided for in the financial
statements and consistently have been within management's
expectations.
2. Net sales to two major customers accounted for approximately 51% and
8% in 1998 and 56% and 10% in 1997 of total net sales, and 60% and
9% during the nine month period ended June 30, 1999, and 72% and 9%
during the six-month period ended June 30, 1998 of total net sales.
NOTE H - INCOME TAXES
At September 27, 1998, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $794,000 that are
available to offset future taxable income and expire in the year 2011. The
Tax Reform Act of 1986 enacted a complex set of rules (Internal Revenue
Code Section 382) limiting the utilization of net operating loss
carryforwards to offset future taxable income following a corporate
"ownership change." Generally, this occurs when there is a greater than
50% change in ownership.
F-11
<PAGE>
Andrex Industries Corp.
NOTES TO FINANCIAL STATEMENTS (continued)
September 27, 1998 and September 28, 1997
(Information relating to June 30, 1999 and 1998 is unaudited)
NOTE H (continued)
The Company has fully reserved the tax benefit of these operating losses
because the likelihood of realization of the tax benefit cannot be
determined. Temporary differences between the timing of reporting certain
items for financial reporting and income tax reporting, principally
depreciation on property, plant and equipment and inventory, are not
considered significant.
The Company incurred a tax expense of $171,000 and $308,000 in 1998 and
1997,respectively, and $-0- and $54,000 for the nine-month periods ended
June 30, 1999 and 1998, respectively, which has been fully offset by the
benefit of utilizing the net operating loss carryforwards.
NOTE I - SALE OF NAOMI KNITTING MILL
During fiscal year 1995, the Company decided to cease operations at its
Naomi Knitting Mill in Zebulon, North Carolina. In fiscal year 1996, the
plant was closed, knitting machinery was relocated to the Asheville
facility and to certain contract knitters, and the Zebulon property was
offered for sale. In fiscal year 1997, the Zebulon property was sold for
$900,000, which resulted in a net gain of $501,000.
NOTE J - SUBSEQUENT EVENTS
1. During December 1998, the Company entered into an agreement with a
shareholder to buy back the shareholder's 8.3% equity interest in
the Company represented by 1,297 common shares in exchange for three
promissory notes for $63,500, $53,500 and $49,500. The promissory
notes have maturity dates in January 1999, January 2000 and January
2001, respectively. Accordingly, the first promissory note for
$63,500 became due and was paid in January 1999.
2. On September 2, 1999, the Company entered into an Asset Purchase
Agreement, dated September 2, 1999 with Levcor International, Inc.
("Levcor"), a publicly held corporation, pursuant to which Levcor
purchased the Company's (1) inventory; (2) machinery and equipment;
(3) office furniture, fixtures and supplies located in New York; (4)
sales orders; and (5) trade name "Andrex Knits." Levcor plans to
sell the machinery and equipment. The purchase price comprised: (1)
cash in the amount of $660,000 (funded by issuance of debt to a
factor); (2) a promissory note in the principal amount of $282,450;
and (3) a promissory note in a principal amount equal to the book
value as of July 1, 1999 of the inventory transferred to Levcor (to
be adjusted based upon the ultimate realization of the inventory).
The promissory notes will both bear interest at 6% per annum.
F-12
<PAGE>
ITEM 7(b) PRO FORMA FINANCIAL STATEMENTS OF LEVCOR INTERNATIONAL, INC. TO
REFLECT THE ACQUISITION OF ANDREX INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed balance sheet has been
prepared by taking the June 30, 1999 balance sheets of Levcor International,
Inc. (the "Company") and Andrex Industries Corp. ("Andrex") and giving effect to
the purchase of assets of Andrex by the Company as if it occurred as of June 30,
1999. The pro forma combined condensed balance sheet has been prepared for
information purposes only and does not purport to be indicative of the financial
condition that necessarily would have resulted had this transaction taken place
at June 30, 1999. The following unaudited pro forma consolidated condensed
statement of operations has been prepared by taking the statements of operations
for the year ended December 31, 1998 and the six-month period ended June 30,
1999 of the Company and Andrex and giving effect to the purchase of assets of
Andrex as if it occurred as of January 1, 1998. Andrex's operating results for
its fiscal year ended September 27, 1998 were adjusted by adding the subsequent
period September 28, 1998 to December 31, 1998 and subtracting the interim
period September 29, 1997 to December 31, 1997. Andrex's operating results for
the nine months ended June 30, 1999 were adjusted by subtracting the interim
period September 28, 1998 to December 31, 1998. The revenues and results of
operations included in the unaudited pro forma consolidated condensed statement
of operations for the year ended December 31, 1998 and the six-month period
ended June 30, 1999 are not considered necessarily to be indicative of
anticipated results of operations for periods subsequent to the transaction, nor
are they considered necessarily to be indicative of the results of operations
for the periods specified had the transaction actually been completed at the
beginning of the year. These financial statements should be read in conjunction
with the notes to the unaudited pro forma consolidated condensed financial
statements, the financial statements of the Company and related notes thereto
(as previously filed on Form 10-KSB), and the financial statements of Andrex and
related notes thereto, included herein.
F-13
<PAGE>
Levcor International Inc.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1999
<TABLE>
<CAPTION>
Pro forma Levcor
ASSETS Levcor Andrex adjustments pro forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 10,000 $ 10,000
Accounts receivable, Net 124,000 $ 1,263,000 (1,263,000)(a) 124,000
Amounts due from related party 283,000 (283,000)(a)
Inventories 1,409,000 2,081,000 (c) 3,490,000
Other assets 28,000 73,000 (73,000)(a) 28,000
Notes receivable - current portion 21,000 (21,000)(a)
----------- ----------- ----------- -----------
Total current assets 1,571,000 3,721,000 (1,640,000) 3,652,000
PROPERTY, PLANT AND EQUIPMENT - at cost
Land, Oil and Gas Properties 887,000 8,000 (8,000)(b) 887,000
Building and improvements 661,000 (661,000)(b)
Machinery and equipment 23,000 3,207,000 (3,207,000)(b) 23,000
----------- ----------- ----------- -----------
910,000 3,876,000 (3,876,000) 910,000
Less accumulated depletion and amortization (888,000) (3,081,000) 3,081,000 (888,000)
----------- ----------- ----------- -----------
22,000 795,000 (795,000) 22,000
ASSETS HELD FOR SALE 942,000(b) 942,000
NOTES RECEIVABLE - LONG-TERM 5,000 (5,000)(a)
OTHER ASSETS 10,000 10,000
----------- ----------- ----------- -----------
$ 1,603,000 $ 4,521,000 $(1,498,000) $ 4,626,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-14
<PAGE>
Levcor International Inc.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1999
<TABLE>
<CAPTION>
Pro forma Levcor
LIABILITIES AND STOCKHOLDERS' EQUITY Levcor Andrex adjustments pro forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Cash overdraft $ 120,000 $ (120,000)(a)
Accounts payable, accrued expenses and
other current liabilities $ 2,141,000 2,012,000 (2,012,000)(a) $ 2,141,000
Loan payable 225,000 225,000
Current maturities of long-term obligations 283,000 283,000
----------- ----------- ----------- -----------
Total current liabilities 2,649,000 2,132,000 (2,132,000) 2,649,000
LONG-TERM OBLIGATIONS 720,000 448,000 (448,000)(a) 3,743,000
----------- ----------- -----------
2,081,000(c)
660,000(b)
282,000(b)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.56 par value; authorized,
15,000,000 shares; issued and
outstanding, 1,766,799 shares 989,000 1,000 (1,000)(a) 989,000
Paid-in capital 5,002,000 5,002,000
Retained earnings (7,757,000) 5,988,000 (5,988,000)(a) (7,757,000)
Treasury stock, at cost - 14,433 shares (4,048,000) 4,048,000(a)
----------- ----------- ----------- -----------
(1,766,000) 1,941,000 (1,941,000) (1,766,000)
----------- ----------- ----------- -----------
$ 1,603,000 $ 4,521,000 $(1,498,000) $ 4,626,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-15
<PAGE>
Levcor International Inc.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30, 1999
<TABLE>
<CAPTION>
Pro forma Levcor
Levcor Andrex adjustments pro forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross sales $ 6,734,000 $ 9,359,000 $ 16,093,000
Sales returns and allowances (277,000) (277,000)
------------ ------------ ------------
Net sales 6,734,000 9,082,000 15,816,000
Cost of goods sold 5,749,000 7,490,000 13,239,000
------------ ------------ ------------
985,000 1,592,000 2,577,000
Costs and expenses
Selling 503,000 849,000 $ (38,000)(f) 1,314,000
Design 350,000 350,000
Production 189,000 189,000
General and administrative 327,000 727,000 1,054,000
Environmental 110,000 110,000
------------ ------------ ------------ ------------
830,000 2,225,000 (38,000) 3,017,000
------------ ------------ ------------ ------------
Income (loss) from operations 155,000 (633,000) 38,000 (440,000)
------------ ------------ ------------ ------------
Other income (expense)
Interest expense, less interest income (148,000) (87,000)(d) (219,000)
16,000(e)
Other income 84,000 84,000
------------ ------------ ------------ ------------
(64,000) (71,000) (135,000)
------------ ------------ ------------
NET INCOME (LOSS) $ 155,000 $ (697,000) $ (33,000) $ (575,000)
============ ============ ============ ============
Weighted-average shares outstanding,
basic and diluted 1,765,966 1,765,966
Earnings (loss) per share, basic and diluted $ .09 $ (.33)
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-16
<PAGE>
Levcor International Inc.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
Year ended December 31, 1998
<TABLE>
<CAPTION>
Pro forma Levcor
Levcor Andrex adjustments pro forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross sales $ 10,135,000 $ 24,662,000 $ 34,797,000
Sales returns and allowances (799,000) (799,000)
------------ ------------ ------------
Net sales 10,135,000 23,863,000 33,998,000
Cost of goods sold 9,013,000 19,912,000 28,925,000
------------ ------------ ------------
1,122,000 3,951,000 5,073,000
Costs and expenses
Selling 1,101,000 1,227,000 $ (91,000)(f) 2,237,000
Design 464,000 464,000
Production 182,000 182,000
General and administrative 683,000 1,097,000 1,780,000
Environmental 150,000 150,000
------------ ------------ ------------ ------------
1,784,000 3,120,000 (91,000) 4,813,000
------------ ------------ ------------ ------------
Income (loss) from operations (662,000) 831,000 91,000 260,000
------------ ------------ ------------ ------------
Other income (expense)
Interest expense, less interest income (560,000) (137,000)(d) (697,000)
32,000(e) 32,000
Gain on sale of fixed assets 26,000 26,000
Other income 2,000 131,000 133,000
------------ ------------ ------------ ------------
2,000 (403,000) (105,000) (506,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (660,000) $ 428,000 $ (14,000) $ (246,000)
============ ============ ============ ============
Weighted-average shares outstanding,
basic and diluted 1,753,979 1,753,979
Earnings (loss) per share,
basic and diluted $ (.38) $ (.14)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
Levcor International, Inc. and
Andrex Industries, Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The accompanying pro forma unaudited consolidated condensed balance sheet and
statement of operations present the financial position and results of operations
of Levcor International, Inc. (the "Company") giving effect to the September 2,
1999 purchase of assets of Andrex Industries Corp. ("Andrex").
At closing, the Company gave to Andrex (1) cash in the amount of $660,000
(funded by its factor); (2) a 6% promissory note in the principal amount of
$282,450; and (3) a 6% promissory note in the principal amount equal to the book
value as of July 1, 1999 of the inventory transferred to Levcor (to be adjusted
based upon the ultimate realization of the inventory).
The Company funded the $660,000 cash payment with a promissory note due to its
factor with principal and interest payable in quarterly installments at 8.5%.
The promissory note for $282,450 is due on April 1, 2000 in a lump-sum payment
of principal and interest at 6%. The promissory note for inventory is to be paid
down with proceeds from the sale of such inventory, with interest accrued on
outstanding balances at 6%.
The pro forma financial statements reflect these amounts tendered at the
closing. The adjustments below were prepared based on data currently available
and in some cases are based on estimates or approximations. It is possible that
the actual amounts to be recorded may have an impact on the results of
operations and the balance sheet different from that reflected in the
accompanying pro forma unaudited consolidated condensed financial statements. It
is therefore possible that the entries presented below will not be the amounts
ultimately recorded at the closing date.
Balance sheet at June 30, 1999:
(a) To eliminate assets, liabilities and equity accounts not included in the
purchase agreement.
(b) To (i) remove Andrex machinery and equipment at cost and record it as
purchased at its fair value of $942,450, and (ii) record the related notes
of $660,000 and $282,450 payable to a factor and to Andrex, respectively,
to fund the purchase, and (iii) classify the machinery and equipment as
assets held for sale.
(c) To record the purchase of Andrex inventory and related note payable. In
accordance with the Asset Purchase Agreement, actual inventory purchased
was $1,164,858 representing 100% of Andrex inventory as of the purchase
date, September 2, 1999. Accordingly, for the purpose of showing a pro
forma combined balance sheet at June 30, 1999, the amount of $2,080,543,
representing 100% of Andrex inventory at June 30, 1999, is combined
herein.
F-18
<PAGE>
Levcor International, Inc. and
Andrex Industries, Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS (continued)
Statement of operations for the year ended December 31, 1998 and the six-month
period ended June 30, 1999:
(d) To record interest on debt used to finance the purchase of assets.
(e) To remove interest expense on long-term obligations of Andrex not acquired
by Levcor for the year ended December 31, 1998 and the six months ended
June 30, 1999.
(f) To remove provisions for doubtful accounts recorded during the year ended
December 31, 1998 and the six months ended June 30, 1999 relating to
Andrex receivables for sales prior to January 1, 1998.
F-19
