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 3/31/99
|_| 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 of 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
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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 11, 1999, 1,766,799 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>
Table of Contents
Page
Part I....................................................................1
Item 1. Financial Statements
Balance Sheet as of March 31, 1999 (Unaudited)................1
Statements of Operations for the
Three Months Ended March 31, 1999 and
March 31, 1998 (Unaudited)....................................2
Statements of Cash Flows for the
Three Months Ended March 31, 1999 and
March 31, 1998 (Unaudited)....................................3
Notes to Financial Statements (Unaudited).....................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation..................5
Part II...................................................................8
Item 6. Exhibits and Reports on Form 8-K .............................8
Signatures............................................................9
Exhibit 27...........................................................10
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS
Levcor International, Inc.
BALANCE SHEET
March 31, 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalent $ 8,206
Accounts receivable 85,976
Due from factor 400,799
Inventories 2,235,750
Prepaid expenses 3,890
-----------
Total current assets 2,734,621
PLANT AND EQUIPMENT, net of accumulated depreciation of $6,653 14,896
OIL AND GAS PROPERTIES (using full cost method), net of 10,973
accumulated depletion and depreciation of $879,510
INTANGIBLE ASSETS, net of accumulated amortization of $4,059 10,880
-----------
$ 2,771,370
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,052,955
Current maturities of long-term debt 282,800
Due to officer/stockholder 225,000
-----------
Total current liabilities 3,560,755
LONG TERM DEBT, less current maturities 282,800
DUE TO OFFICER/STOCKHOLDER 720,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - par value $.56 per share; authorized
15,000,000 shares, outstanding 1,766,799 shares 988,642
Capital in excess of par value 5,001,880
Accumulated deficit (7,782,707)
-----------
(1,792,185)
-----------
$ 2,771,370
===========
The accompanying note is an integral part of these statements.
1
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Levcor International, Inc
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
(Unaudited)
1999 1998
----------- -----------
Revenue
Sales - Woven Fabrics Division $ 3,146,558 $ 5,586,201
Less cost of sales 2,592,805 4,889,482
----------- -----------
Gross profit 553,753 696,719
----------- -----------
Sales - Oil and gas 5,798 9,101
Less cost of sales 3,570 9,066
----------- -----------
Gross profit 2,228 35
----------- -----------
Total gross profit 555,981 696,754
Expenses
Selling expenses - Woven Fabrics Division
Salaries, benefits and payroll taxes 203,430 214,307
Commissions 10,965 64,578
Other selling expenses 24,459 65,167
----------- -----------
Total selling expenses 238,854 344,052
General and administrative expenses
Salaries, benefits and payroll taxes 39,328 14,134
Accounting and administrative fees 28,398 32,692
Audit fees 4,250 8,000
Directors' fees and expenses 1,250 1,250
Factor's fees 20,520 35,867
Insurance 3,237 1,590
Interest expense 76,286 92,795
Legal fees 7,500 2,500
Transfer agent fees 1,050 1,058
Other business taxes 3,110 10
Other expenses 3,814 25,653
----------- -----------
Total general and administrative expenses 188,743 215,549
----------- -----------
Total expenses 427,597 559,601
----------- -----------
NET EARNINGS 128,384 137,153
Accumulated deficit - beginning of year (7,911,091) (7,251,603)
----------- -----------
Accumulated deficit - end of quarter (7,782,707) (7,114,450)
----------- -----------
Average number of shares outstanding 1,765,549 1,738,499
----------- -----------
Net earnings per common share $ 0.07 $ 0.08
=========== ===========
The accompanying note is an integral part of these statements.
2
<PAGE>
Levcor International, Inc.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Cash flows from operating activities
Net earnings $ 128,384 $ 137,153
Adjustments to reconcile net earnings to
net cash used in operating activities
Depletion and depreciation 2,518 4,088
Services paid in common stock 5,000 5,000
Changes in operating assets and
liabilities, net of assets acquired
Accounts receivable (81,013) (15,028)
Due from factor (334,236) (773,193)
Inventories (824,650) 829,339
Prepaid expenses 2,479 379
Accounts payable and accrued expenses 1,049,406 (218,230)
----------- -----------
Net cash used in operating activities (52,112) (30,492)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment and
intangible assets -- (3,043)
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Net cash used in investing activities -- (3,043)
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (55,112) (33,535)
Cash and cash equivalents at beginning of year 60,318 42,043
----------- -----------
Cash and cash equivalents at end of quarter $ 8,206 $ 8,508
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for Interest $ 76,286 $ 92,795
</TABLE>
The accompanying note is an integral part of these statements.
3
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 1999
(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, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
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, 1998.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Results of Operations:
The Company's sales for the Woven Fabrics Division for the three months
ended March 31, 1999 were $3,146,558, a decrease of $2,439,643 or 44%, from
$5,586,201 for the same period in 1998. The cost of sales of the Woven Fabrics
Division in the first quarter of 1999 also decreased 47%, from $4,889,482 in
1998 to $2,592,805 in 1999. The gross profits on sales for the Woven Fabrics
Division for the first three months of 1999 was thus $553,753, a decrease of
$142,966, or 21% from $696,719 for the same period in 1998. The first quarter
1999 Woven Fabric Division's decrease in sales, cost of sales and gross profits
on sales were due to the close-out sale in the 1998 quarter of cotton fabric
lines which had a lessor gross profit as a percentage of sales than the blended
fiber fabrics which sales predominated in 1999's first quarter. Partially
offsetting the Woven Fabrics Division decrease in gross profits for the first
three months of 1999 was an increase of $2,193 in sales, less the cost of sales
from oil and gas operations in the first three months of 1999 compared to the
same period in 1998.
The Company's total expenses for the first quarter of 1999 were $427,597,
a decrease of $132,004 or 24%, from $559,601 in the same period in 1998. Such
decrease was due to: (i) a decrease in selling expenses of the Woven Fabrics
Division in the first quarter of 1999 of $105,198, or 31%, compared to the same
period in 1998, and (ii) a decrease in general and administrative expenses in
the first quarter of 1999 of $26,806, or 12%, compared to the same period in
1998, predominant among such decrease being decreases in commissions, factor
fees and interest expenses.
As a result of the foregoing, the Company reflected a net profit of
$128,384 in the first three months of 1999 compared to a net profit of $137,153
for the same period in 1998.
Liquidity and Capital Resources
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) had agreed to assign
to Congress Talcott its interest in all receivables derived from the sale of
woven fabrics produced by the Woven Fabrics Division, and 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) was
entitled to request advances up to 90% of the net purchase price of the
receivables, and 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 expired pursuant to its terms on November 14, 1998.
The Company entered into a Factoring Agreement with The CIT
Group/Commercial Services, Inc. ("CIT Group") on September 17, 1998 (the "CIT
Group Factoring Agreement"). Pursuant to the terms of the CIT Group Factoring
Agreement, the Company, among other things: (i) has agreed to assign to CIT
Group its interest in all accounts receivable arising from the sale
5
<PAGE>
of inventory or rendition of services (the "Accounts"), including those under
any trade names, through any divisions and through any selling agent, and pay
CIT Group a factoring fee of 0.6% of the gross face amount of the Accounts, with
a minimum commission of $3 per invoice and $48,000 per annum, an additional 1/4
of 1% of the gross face amount of each Account for each 30-day period or part
thereof by which the longest terms of sale applicable to such Account exceed 90
days, and an additional 1% of the gross face amount of all Accounts arising from
sales to customers located outside the United States; and (ii) may request
advances (which advances shall be made at the CIT Group's sole discretion) on
the net purchase price of the Accounts, and pay interest on such advances at the
rate of 0.5% above The Chase Manhattan Bank's prime rate for the term thereof.
The CIT Group Factoring Agreement remains effective until termination by either
party. CIT Group may terminate the CIT Group Factoring Agreement at any time,
upon 60 days' prior written notice or immediately without prior written notice,
upon the occurrence of an Event of Default (as such term is defined in the CIT
Group Factoring Agreement). The Company may terminate the CIT Group Factoring
Agreement on any September 30th, upon 60 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 payments of $282,800 to Andrex. In order to meet
the $282,800 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 also made loans to the Company in the third quarter of 1998
in an aggregate amount of $225,000 to supplement its cash requirements, 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, 1999.
The Company believes that cash generated from the Company's sale of woven
fabrics produced by the Company's Woven Fabrics Division, the advances under the
CIT Group Factoring Agreement, loans from Mr. Levinson (if needed) and, to a
lesser extent, the proceeds from the sale of oil and gas from the Company's
ownership interest in oil and gas wells will be sufficient to fund the Company's
operations for 1999. The Company's unrestricted cash and cash equivalents at
March 31, 1999 was $8,206, a decrease of $52,112 from $60,318 at December 31,
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. Such seasonality, taking into account the standard lead time required
by the fashion industry to manufacture apparel, corresponds respectively to the
autumn and spring retail selling seasons.
6
<PAGE>
The Company's oil and gas business is not seasonal, except that sales of
natural gas peak during the winter heating season.
Year 2000 Issue
Computer programmers and other designers of equipment that use
microprocessors have long abbreviated dates by eliminating the first two digits
of the year. The "Year 2000 Issue" stems from the concern that as the year 2000
approaches, many computer and equipment systems may be unable to distinguish
those years which begin with the numerals "20" from those years which begin with
the numerals "19," and, as a result, may not accurately process certain
date-based information. This inaccuracy could cause a variety of significant
operational problems for businesses.
As of December 31, 1998, the Company's internal Year 2000 compliance plan
was fully implemented at a cost of $1,100. The Company had utilized both
internal and external resources to modify or replace the affected portions of
its computer and equipment systems and test the new and modified systems for
Year 2000 compliance. The Company has determined that its computer and equipment
systems do not interface with the computer and equipment systems of any of its
major suppliers, customers or financial institutions. However, the inability of
the Company's principal suppliers, customers or financial institutions to become
Year 2000 compliant in a timely manner could have a material adverse effect on
the Company's results of operation, liquidity or financial condition. The
Company does not have a contingency plan in place to specifically cover the
possibility that the Company's major suppliers, customers or financial
institutions will not achieve Year 2000 compliance in a timely manner.
7
<PAGE>
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K.
(a) The following exhibits are 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, 1999, 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.
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LEVCOR INTERNATIONAL, INC.
Date May 12, 1999 /s/ Robert A. Levinson
---------------------- ----------------------------
Robert A. Levinson
Chairman of the Board,
President and Secretary
Date May 12, 1999 /s/ Rudolph E. Bremser
---------------------- ----------------------------
Rudolph E. Bremser
Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
for the Quarterly Period Ended March 31, 1999, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,206
<SECURITIES> 0
<RECEIVABLES> 486,775
<ALLOWANCES> 0
<INVENTORY> 2,235,750
<CURRENT-ASSETS> 2,734,621
<PP&E> 927,007
<DEPRECIATION> 890,258
<TOTAL-ASSETS> 2,771,370
<CURRENT-LIABILITIES> 3,560,755
<BONDS> 1,002,800
0
0
<COMMON> 988,642
<OTHER-SE> (2,780,827)
<TOTAL-LIABILITY-AND-EQUITY> 2,771,370
<SALES> 3,152,356
<TOTAL-REVENUES> 3,152,356
<CGS> 2,596,375
<TOTAL-COSTS> 3,023,972
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,286
<INCOME-PRETAX> 128,384
<INCOME-TAX> 0
<INCOME-CONTINUING> 128,384
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,384
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
