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 6/30/99
-------------
|_| 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
- --------------------------------------------------------------------------------
(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, 1999, 2,166,799 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 June 30, 1999 (Unaudited).........1
Statements of Operations for the
Six Months Ended June 30, 1999 and
June 30, 1998 (Unaudited).............................2
Statements of Operations for the
Three Months Ended June 30, 1999 and
June 30, 1998 (Unaudited).............................3
Statements of Cash Flows for the
Six Months Ended June 30, 1999 and
June 30, 1998 (Unaudited).............................4
Note to Financial Statements (Unaudited)..............5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation..........6
Part II................................................................10
Item 6. Exhibits and Reports on Form 8-K.....................10
Signatures.............................................................11
Exhibit 27.............................................................12
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS
Levcor International, Inc.
BALANCE SHEET
June 30, 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,758
Accounts receivable 105,871
Due from factor 18,152
Inventories 1,408,906
Prepaid expenses 27,653
-----------
Total current assets 1,570,340
PLANT AND EQUIPMENT, net of accumulated
depreciation of $7,730 15,688
OIL AND GAS PROPERTIES (using full cost method),
net of accumulated depletion and depreciation of $880,182 6,501
INTANGIBLE ASSETS, net of accumulated amortization of $4,844 10,131
-----------
$ 1,602,660
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,141,235
Current maturities of long-term debt 282,800
Due to officer/stockholder 225,000
-----------
Total current liabilities 2,649,035
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 (7,756,897)
-----------
(1,766,375)
===========
$ 1,602,660
===========
The accompanying note is an integral part of these statements.
1
<PAGE>
Levcor International, Inc.
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Sales - Woven Fabrics Division $ 6,720,908 $ 7,143,354
Less cost of sales 5,742,383 6,293,666
----------- -----------
Gross profit 978,525 849,688
----------- -----------
Sales - Oil and gas 12,647 17,118
Less cost of sales 7,062 16,757
----------- -----------
Gross profit 5,585 361
----------- -----------
Total gross profit 984,110 850,049
Expenses
Selling expenses - Woven Fabrics Division
Salaries, benefits and payroll taxes 405,622 418,053
Commissions 19,531 78,582
Other selling expenses 78,181 120,265
----------- -----------
Total selling expenses 503,334 616,900
General and administrative expenses
Salaries, benefits and payroll taxes 77,737 27,929
Accounting and administrative fees 29,295 29,300
Audit fees 14,165 16,000
Directors' fees and expenses 2,500 (6,250)
Factor's fees 47,225 51,728
Insurance 6,473 6,529
Interest expense 119,307 141,775
Legal fees 15,000 7,563
Transfer agent fees 2,100 2,108
Shareholders' communications -- 14,460
Other business taxes 3,287 2,280
Other expenses 9,493 25,427
----------- -----------
Total general and administrative expenses 326,582 318,849
----------- -----------
Total expenses 829,916 935,749
NET EARNINGS (LOSS) $ 154,194 $ (85,700)
=========== ===========
Accumulated deficit - beginning of year $(7,911,091) $(7,251,603)
----------- -----------
Accumulated deficit - end of second quarter $(7,756,897) $ 7,337,303
=========== ===========
Average number of shares outstanding 1,765,966) 1,747,249
----------- -----------
Net earnings (loss) per common share $ 0.09 ($0.05)
====== ======
</TABLE>
The accompanying note is an integral part of these statements.
2
<PAGE>
Levcor International, Inc
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Sales - Woven Fabrics Division $ 3,574,350 $ 1,557,153
Less cost of sales 3,149,578 1,404,184
----------- -----------
Gross profit 424,772 152,969
----------- -----------
Sales - Oil and gas 6,849 8,017
Less cost of sales 3,492 7,691
----------- -----------
Gross profit 3,357 326
----------- -----------
Total gross profit 428,129 153,295
Expenses
Selling expenses - Woven Fabrics Division
Salaries, benefits and payroll taxes 202,192 203,746
Commissions 8,566 14,004
Other selling expenses 39,972 55,098
----------- -----------
Total selling expenses 250,730 272,848
General and administrative expenses
Salaries, benefits and payroll taxes 38,409 13,795
Accounting and administrative fees 14,647 (3,392)
Audit fees 9,915 8,000
Directors' fees and expenses 1,250 (7,500)
Factor's fees 26,705 15,861
Insurance 3,236 4,939
Interest expense 43,021 48,980
Legal fees 7,500 5,063
Transfer agent fees 1,050 1,050
Shareholders communications -- 14,460
Other business taxes 177 2,270
Other expenses 5,679 (226)
----------- -----------
Total general and administrative expenses 151,589 103,300
----------- -----------
Total expenses 402,319 376,148
NET EARNINGS (LOSS) $ 25,810 $ (222,853)
=========== ===========
Accumulated deficit - beginning of quarter $(7,782,707) $(7,114,450)
Accumulated deficit - end of quarter $(7,756,897) $(7,337,303)
=========== ===========
Average number of shares outstanding 1,766,799 1,753,899
----------- -----------
Net earnings (loss) per common share $ 0.01 ($0.13)
====== ======
</TABLE>
The accompanying note is an integral part of these statements.
3
<PAGE>
Levcor International, Inc.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 154,194 $ (85,700)
Adjustments to reconcile net earnings (net loss) to net
cash used in operating activities
Depletion and depreciation 5,016 7,838
Services paid in common stock 5,000 5,000
Changes in operating assets and liabilities, net of assets acquired
Accounts receivable (100,908) (8,375)
Due from factor 48,411 472,309
Inventories 2,194 705,601
Prepaid expenses (21,284) (9,195)
Accounts payable and accrued expenses 137,686 (879,587)
--------- ---------
Net cash provided by operating activities 230,309 207,891
--------- ---------
Cash flows from investing activities
Purchase of property and equipment and intangible assets (1,869) (9,200)
Sale of oil and gas properties 3,800 --
--------- ---------
Net cash provided by (used in) investing activities 1,931 (9,200)
--------- ---------
Cash flows from financing activities
Advances from shareholder -- 50,000
Exercise of stock options -- 7,562
Payment of long-term debt (282,800) (282,800)
--------- ---------
Net cash (used in) financing activities (282,800) (225,238)
--------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (50,560) (26,547)
Cash and cash equivalents at beginning of year 60,318 42,043
========= =========
Cash and cash equivalents at end of quarter $ 9,758 $ 15,496
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for Interest $ 119,307 $ 141,775
</TABLE>
The accompanying note is an integral part of these statements.
4
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS
Six Months Ended June 30, 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 and six months ended June 30,
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.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Results of Operations:
Six months ended June 30, 1999 as compared to six months ended June 30,
1998.
The Company's sales for the Woven Fabrics Division for the six months
ended June 30, 1999 were $6,720,908, a decrease of $422,446 or 6%, from
$7,143,354 for the same period in 1998. The cost of sales of the Woven Fabrics
Division in the first half of 1999 was $5,742,383, a decrease of 9% from
$6,293,666 in 1998. The gross profits on sales for the Woven Fabrics Division
for the first six months of 1999 was thus $978,525, an increase of $128,837, or
15% from $849,688 for the same period in 1998. The first half 1998 Woven Fabric
Division's sales were augmented by the close out sale of cotton fabric lines.
The 1999 increase in gross profit was due to the lower gross profit on the
close-out sale than the sales of blended fiber fabrics, which predominated in
1999's first half. Added to the Woven Fabrics Division increase in gross profits
for the first six months of 1999 was an increase of $5,224 in gross profit from
oil and gas operations in the first six months of 1999 compared to the same
period in 1998.
The Company's total expenses for the first half of 1999 were $829,916, a
decrease of $105,833 or 11%, from $935,749 in the same period in 1998. Such
decrease was due to the net of: (i) a decrease in selling expenses of the Woven
Fabrics Division in the first half of 1999 of $113,566, or 18%, compared to the
same period in 1998, predominate among such decrease was the decrease in
commissions resulting from the reduction in sales executed through outside sales
agents; and (ii) an increase in general and administrative expenses in the first
half of 1999 of $7,733 or 2%, predominate among such increase was increased
salaries, benefits and payroll taxes.
As a result of the foregoing, the Company reflected a net profit of
$154,194 in the first six months of 1999 compared to a net loss of $85,700 for
the same period in 1998.
Three months ended June 30, 1999 as compared to three months ended June
30, 1998.
The Company's sales for the Woven Fabrics Division for the three months
ended June 30, 1999 were $3,574,350 an increase of $2,017,197, or 130% from
$1,557,153 for the same period in 1998. The cost of sales of the Woven Fabrics
Division in the second quarter of 1999 was $3,149,578, an increase of 124% from
$1,404,184 in 1998. The gross profit on sales for the Woven Fabrics Division for
the three months ended June 30, 1999 was thus $424,772, an increase of $271,803
or 178% from $152,969 for the same period in 1998. The second quarter 1999 Woven
Fabrics Division's increase in sales and gross profit margin on sales reflected
the concentration by the Company on blended fiber fabrics rather than the cotton
fabric lines. Added to the Woven Fabrics Division increase in gross profits for
the three months ended June 30, 1999 was an increase of $3,031 in gross profit
from oil and gas operations in the second quarter of 1999 compared to the same
period in 1998.
The Company total expenses for the second quarter of 1999 were $402,319,
an increase of $26,171, or 7%, from $376,148 in the same period in 1998. Such
increase was due to the net
6
<PAGE>
of: (i) a decrease in selling expenses of the Woven Fabrics Division in the
second quarter of 1999 of $22,118, or 8%, compared to the same period in 1998;
and (ii) an increase in general and administrative expenses in the second
quarter of 1999 of $48,289, or 38% compared to the same period in 1998,
predominate among such increase was increased salaries, benefits, payroll taxes
and factor fees.
As a result of the foregoing, the Company reflected a net profit of
$25,810 in the second three months of 1999 compared to a net loss of $222,853
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) assigned to Congress
Talcott its interest in all receivables derived from the sale of woven fabrics
produced by the Woven Fabrics Division, and paid Congress Talcott a monthly
commission of 0.6% of the gross amount on such receivables, with a minimum
commission of $4,000; 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) assigned to CIT Group its
interest in all accounts receivable arising from the sale of inventory or
rendition of services (the "Accounts"), including those under any trade names,
through any divisions and through any selling agent, and pays 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
7
<PAGE>
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 each of 1998 and 1999 in an
aggregate amount of $225,000 and $500,000 respectively, 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.
On July 26, 1999, Mr. Levinson and the Company entered into an agreement
whereby Mr. Levinson agreed to accept 400,000 shares of the Common Stock of the
Company, in full and final satisfaction of the loan made to the Company in July
of 1999 in the principal amount of $500,000.
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
June 30, 1999 was $9,758, a decrease of $50,560 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.
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
8
<PAGE>
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.
9
<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, statements of operations and statements of cash flow as of and for
the six months ended June 30, 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.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEVCOR INTERNATIONAL, INC.
Date August 13, 1999 /s/ Robert A. Levinson
--------------------------- -------------------------------
Robert A. Levinson
Chairman of the Board,
President and Secretary
Date August 13, 1999 /s/ Rudolph E. Bremser
--------------------------- -------------------------------
Rudolph E. Bremser
Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
for the Quarterly Period Ended June 30, 1999, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,758
<SECURITIES> 0
<RECEIVABLES> 124,023
<ALLOWANCES> 0
<INVENTORY> 1,408,906
<CURRENT-ASSETS> 1,570,340
<PP&E> 925,076
<DEPRECIATION> 892,756
<TOTAL-ASSETS> 1,602,660
<CURRENT-LIABILITIES> 2,649,035
<BONDS> 720,000
0
0
<COMMON> 988,642
<OTHER-SE> (2,755,017)
<TOTAL-LIABILITY-AND-EQUITY> 1,602,660
<SALES> 6,733,555
<TOTAL-REVENUES> 6,733,555
<CGS> 5,749,445
<TOTAL-COSTS> 6,579,361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,307
<INCOME-PRETAX> 154,194
<INCOME-TAX> 0
<INCOME-CONTINUING> 154,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,194
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
