U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to __________
Commission file number 811-3584
LEVCOR INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer In Its Charter)
Delaware 06-0842701
- ----------------------------------------- -------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1071 Avenue of the Americas, New York, New York 10018
-----------------------------------------------------
(Address of Principal Executive Offices)
Issuer's telephone number (203) 264-7428
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $0.56 per share
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 issuer was required to file such reports), and (2) has
been subject to such filing requirements for past the 90 days. Yes |X| No |_|
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Issuer's revenues for the fiscal year ended December 31, 1998: 10,137,229.
As at March 29, 1999, approximately 1,766,799 shares of Common Stock of
the issuer were outstanding and the aggregate market value of the voting common
stock held by non-affiliates, was approximately $993,824.44.
Transitional Small Business Disclosure Format: Yes |_| No |X|
Documents incorporated by reference: None
<PAGE>
Table of Contents
Page
PART I.........................................................................1
Item 1. DESCRIPTION OF BUSINESS.........................................1
Item 2. DESCRIPTION OF PROPERTY.........................................3
Item 3. LEGAL PROCEEDINGS...............................................4
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............5
PART II........................................................................6
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........6
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......7
Item 7. FINANCIAL STATEMENTS............................................9
Item 8. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................................24
PART III......................................................................25
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. ........................25
Item 10. EXECUTIVE COMPENSATION.........................................27
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................................28
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................29
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K........................29
<PAGE>
PART I.
Item 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
Levcor International, Inc. (the "Company"), was incorporated in 1964 under
the laws of the Islands of Bermuda and was reorganized in 1967 under the laws of
the State of Delaware. In 1995, the Company changed its name from Pantepec
International, Inc. to Levcor International, Inc.
Since its incorporation, the Company has been engaged in the ownership of
fractional interests in oil and gas wells and leases with respect thereto. In
1995, the Company acquired a woven fabric converting business that produces
fabrics used in the production of apparel. This acquisition formed the basis of
the Company's new line of business, the Looms Division, which concentrates on
converting cotton and cotton-blend fabrics for sale to domestic apparel
manufacturers. On October 1, 1997, the Company formed the Paradox Division,
which specializes in converting pure-synthetic-fiber-fabrics for sale to
domestic apparel manufacturers.
With significantly reduced revenues from its oil and gas properties (a
naturally diminishing asset), the operation of the Looms and Paradox Divisions
(collectively, the "Woven Fabrics Division"), now comprise the Company's primary
business focus and constitutes substantially all of the Company's revenues.
BUSINESS OF THE ISSUER
(A) The Woven Fabrics Division
The Woven Fabrics Division is engaged in converting textiles for sale to
domestic apparel manufacturers. The converting process consists of (i) designing
fabrics and commissioning textile mills to weave the greige fabric (i.e.,
undyed) according to the Company's specifications, and (ii) commissioning fabric
finishers (i.e., dye plants) to dye, print and finish the greige fabric again
according to the Company's specifications. The Company contracts with commercial
transporters to deliver greige fabric from textile mills to dyers, and to
deliver finished fabric from dyers to apparel manufacturers. The Company places
orders for the sale of finished fabrics through its sales personnel and
independent commissioned contractors.
The raw materials used by the Woven Fabrics Division to fabricate textiles
are typically a combination or blend of two or more fibers, such as rayon,
acetate, polyester, cotton and flax. The principal suppliers of the greige
fabric used by the Woven Fabrics Division during 1998 are JPS Converter and
Industrial Corp., Duro Industries, Inc. and Stonecutter Mills. The primary dyers
in the conversion process used by the Woven Fabrics Division are Pioneer
Finishing, Texprint (GA), Inc., Priority Finishing Corp. and Cheraw Dyeing &
Finishing.
In 1998, Alfred Dunner, a manufacturer of women's apparel, accounted for
$3,483,000 (approximately 34%) of the Woven Fabrics Division's sales revenues,
and the Apparel Group, a manufacturer of women's apparel, accounted for
$1,222,000 (approximately 12%) of the Woven Fabrics Division's sales revenues.
1
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In 1998, research and development expenses related to the Woven Fabrics
Division, the costs of which were not passed on to the Company's customers, were
approximately $149,000.
(B) Ownership of Interests in Oil and Gas Wells
At December 31, 1998, the Company held fractional interests in four wells
located in the United States, owned pursuant to working interest ("WI")
agreements. Such agreements, which were acquired in 1988 and 1989, provide that
the Company is obligated to pay its proportionate share of the cost of
developing and operating such wells and will be paid its proportionate share of
any revenues derived from such wells only after all owners of royalty interests
therein have been paid their proportionate share of any revenues derived from
such wells. During 1998, the Company earned revenues and incurred production
costs (exclusive of severance taxes) under the terms of such agreements of
$30,185 and $25,197, respectively. Other than one well for which the Company
acts as titular operator, the Company is not directly involved in operating any
of such wells or in the marketing and sale of any oil and/or gas derived
therefrom. Such operations and marketing activities are conducted by third
parties, who typically have substantial interests in the wells, pursuant to the
terms of operating agreements which provide that such third-party operators, for
a fee, are responsible for the development and operation of such wells and the
marketing and sale of the resources derived therefrom. During 1998, the
Company's share of the fees payable to well operators for services performed
pursuant to the terms of such agreements was approximately $7,000.
COMPETITION
The textile conversion business is extremely competitive, particularly in
light of existing trade laws that allow low-cost imported fabric and finished
garments into the domestic apparel market. Within the domestic textile
converting business, the Company competes on the basis of the price and
uniqueness in styling of its fabrications.
The exploration for and production of oil and gas are highly competitive
operations, both within the oil and gas industry and with producers of other
types of energy. The ability to exploit a discovery of oil or gas is dependent
upon such considerations as the ability to finance development costs, the
availability of equipment and engineering, and construction delays and
difficulties.
In pursuing its business objectives, the Company must compete with
companies having substantially greater financing and other resources.
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.
2
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ENVIRONMENTAL REGULATION
Environmental laws and regulations of the jurisdictions in which the
Company conducts business could potentially have a significant impact on the
exploration for and development of natural resources by the Company. The Company
believes that its operations are in compliance with all environmental laws and
regulations applicable thereto.
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 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.
EMPLOYEES
The Company currently employs ten persons, all of whom are employed full
time. The Company relies on consultants for income tax, data processing,
geological, sales and administrative services.
Item 2. DESCRIPTION OF PROPERTY.
The Woven Fabrics Division
In connection with the acquisition of the Looms Division from Andrex
Industries Corp., a New York corporation ("Andrex"), the Company entered into a
three-year agreement with Andrex in May 1995, pursuant to which the Company
leases office space located at 1071 Avenue of the Americas, 7th Floor, New York,
New York 10018 from Andrex, and Andrex provides the Company with certain
administrative services. On January 1, 1999, the agreement with Andrex was
extended by the Company on a month to month basis. The Company's cost in 1998
for the lease of such property was $55,000.
3
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Oil and Gas Properties
The Company's oil and gas properties consist of WI in wells located in the
State of Oklahoma. The Company has an interest in four wells, with an aggregate
WI equivalent to 1.46 wells with an aggregate net revenue interest ("NRI") of
1.19 wells.
Item 3.LEGAL PROCEEDINGS.
The 0.67% carried interest in the Kotaneelee gas field sold by the Company
in August 1991, as well as Magellan Petroleum Corporation's 2.67% carried
interest in such field, is held in trust by Canada Southern Petroleum Ltd.
("Canada Southern"), which has a 30% carried interest in such field. In late
1987, Canada Southern commenced an action against Allied-Signal, Inc. in Florida
alleging its failure to fulfill certain contractual obligations to develop the
field. In September 1988, Allied Signal, Inc. commenced an action (the
"Allied-Signal Action") in Calgary, Canada against Dome Petroleum Limited, Amoco
Production Company and Amoco Canada Petroleum Company, Ltd. ("Amoco Canada" and
collectively, the "Amoco-Dome Group") seeking a declaration that the defendants
were responsible for the development of the field, and also seeking
reimbursement of its legal costs incurred in the Florida litigation. The Florida
litigation has since been dismissed.
In March 1989, Allied-Signal, Inc. amended its complaint in the
Allied-Signal Action to add the Company, Canada Southern and Magellan Petroleum
Corporation ("Magellan") as additional defendants. Certain of the other
defendants in the Allied-Signal Action have filed counterclaims against the
Company and other defendants seeking indemnification for unspecified costs and
expenses incurred by them in defending the Allied-Signal Action. In January
1996, the Company, Allied-Signal, Inc., Canada Southern and Magellan Petroleum
Corporation entered into a settlement whereby each party agreed not to sue any
of the other parties and, subsequently, the Allied-Signal Action was
discontinued.
Shortly after the Allied-Signal Action commenced, the Amoco-Dome Group
filed a counterclaim against the Company, Canada Southern and Magellan seeking
certain declaratory relief with respect to their alleged failure to fulfill
certain contractual obligations to develop and market gas from the Kotaneelee
gas field. The trial on the counterclaim action commenced on September 3, 1996,
and is ongoing.
On October 27, 1989, in the Court of Queen's Bench of Alberta, Judicial
District of Calgary, Canada (the "Canada Court"), Canada Southern filed a
statement of claim against the Amoco-Dome Group, Columbia Gas Development of
Canada Ltd. ("Columbia"), Mobil Oil Canada Ltd. ("Mobil") and Esso Resources of
Canada Ltd. ("Esso") seeking a declaratory judgment (the "Declaratory Action")
regarding two issues relating to the Kotaneelee field: (1) whether interest
accrued on the carried interest account, which is the account for costs
recoverable by the working interest parties prior to such time as the carried
interest parties are entitled to participate in revenues derived from the
field's activities (Canada Southern maintains it does not), and (2) whether
expenditures for gathering lines and dehydration equipment are expenditures
chargeable to the carried interest account (Canada Southern maintains they are).
Mobil, Esso and Columbia have filed answers essentially agreeing to the granting
of the relief requested by Canada Southern. The Amoco-Dome group has now
admitted one of two claims, i.e., that interest does not accrue on the carried
interest account.
4
<PAGE>
In 1991, Anderson Exploration Ltd. acquired all of the shares in Columbia,
and changed its name to Anderson Oil & Gas Inc. ("Anderson"). Anderson is now
the sole operator of the field, and is a direct defendant in the Declaratory
Action. Columbia's previous parent, The Columbia Gas System, Inc., was
reorganized in a bankruptcy proceeding in the United States, and is
contractually liable to Anderson in the Declaratory Action.
On March 7, 1990, Canada Southern filed a statement of claim in the Canada
Court against the Amoco-Dome Group, Columbia, Mobil and Esso seeking forfeiture
of the Kotaneelee gas field, damages and other relief for breach of fiduciary
duty (the "Forfeiture Action"). The Company was added as a party plaintiff to
this action in November 1993. If such claim is upheld, the Company could recover
a 2 percent interest in the Kotaneelee field and damages. The defendants have
contested the claim and Canada Southern is pursuing discovery and trial.
Columbia filed a counterclaim seeking, if Canada Southern is successful in its
claims, repayment from Canada Southern, the Company and Magellan Petroleum
Corporation of all sums expended by Columbia on the Kotaneelee fields before
Canada Southern, the Company and Magellan Petroleum Corporation are entitled to
their interests. The trial commenced in September 1996, and is ongoing. Based on
recently discovered evidence, Canada Southern has petitioned the Canada Court
for leave to amend its complaint to add a claim that the defendants failed to
develop the field in a timely manner.
The field operator has entered into a contract for the sale of Kotaneelee
gas. The Company believes that it is too early to determine the impact, if any,
that this contract may have on the status of these cases.
On August 6, 1991, the Company sold to an independent third party (the
"Buyer") its carried interest in a lease in property, including the Kotaneelee
field. The agreement for the transfer of the Company's interest provides that
the Company shall continue to prosecute the Declaratory Action and the
Forfeiture Action. The Company and the Buyer have agreed to share equally all
costs and expenses of the Declaratory Action and the Forfeiture Action and to
share equally any payments or other benefit resulting from the resolution of
such actions. The agreement further provides that the Company shall indemnify
the Buyer against all actions, proceedings, claims, demands, damages and
expenses brought against or suffered by the Buyer which arise out of, or are
attributable to, the Allied-Signal Action.
The Company has been advised that under Canadian law certain costs (known
as "taxable costs") of a litigation may be assessed against a nonprevailing
party. Taxable costs consist primarily of attorney's and expert witness fees
incurred during a trial. In addition, a judge in complex and lengthy trials has
the discretion to increase an award of taxable costs.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 17, 1998, at the Annual Meeting of Stockholders of the Company,
the stockholders (i) elected the following directors: Robert A. Levinson, John
McConnaughy, and Edward H. Cohen; and (ii) ratified the appointment of Grant
Thornton LLP as independent auditors of the Company for the year ended December
31, 1998.
5
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PART II.
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, par value $0.56 per share (the "Common
Stock"), is traded in the "pink sheets" in the over-the-counter market under the
symbol "LEVC". On March 29, 1999, the closing bid price of the Common Stock was
$0.5625 per share. The Common Stock is traded sporadically and no established
liquid trading market currently exists therefor.
The following table sets forth the range of high and low bid prices in the
"pink sheets" in the over-the-counter market for the periods indicated. Such
quotations reflect inter-dealer prices or transactions solely between
market-makers without retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions.
Period Price
------ -----
1998 High Low
---- ---- ---
First Quarter $3.25 $1.5
Second Quarter $3.375 $1.5625
Third Quarter $1.6875 $0.53125
Fourth Quarter $1.875 $0.5
Period Price
------ -----
1997 High Low
---- ---- ---
First Quarter $0.25 $0.0625
Second Quarter $0.125 $0.0625
Third Quarter $0.3125 $0.0156
Fourth Quarter $1.00 $0.0156
Holders of Record
As of March 29, 1999, there were approximately 6,514 holders of record of
the Common Stock.
Dividend Policy
The Company has not paid any cash dividends on the Common Stock and has no
present intention to declare or pay cash dividends on the Common Stock in the
foreseeable future. The Company intends to retain any earnings which it may
realize in the foreseeable future to finance its operations.
6
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations
The Company's sales for the Woven Fabrics Division for 1998 were
$10,104,570, an increase of $6,755,522 or 202% from $3,349,048 for 1997. The
cost of sales of the Woven Fabrics Division in 1998 also increased 202%, to
$6,000,267 from $2,974,072 for 1997. The gross profit on sales for the Woven
Fabrics Division for 1998 was thus $1,130,231, an increase of $755,255 or 201%
from $374,976 for 1997. The 1998 Woven Fabric Division's increase in sales,
cost of sales and gross profit on sales were all due to the October 1997
introduction of a new line of fabrics, merchandised under the name "Paradox
Fabrics." The gross loss on sales from oil and gas operations decreased by
$32,138 in 1998 compared to 1997.
The Company's total expenses for 1998 were $1,783,937, an increase of
$1,098,085 or 160% from $685,852 for 1997. Such increase was due to: (i) an
increase in selling expenses in the Woven Fabrics Division in 1998 of $792,735
or 258% as compared to 1997, and (ii) an increase in general and administrative
expenses of $305,350 or 81% as compared to 1997, predominant among such increase
being increases in salaries, benefits, payroll taxes, factor fees and interest
expenses, primarily related to the Paradox division.
As a result of the foregoing net losses for 1998 were $659,488, an
increase of $308,218 or 88%, from net losses of $351,270 for 1997.
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 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
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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 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; in this regard, Mr. Levinson made loans
to the Company in the third quarter of 1998 in an aggregate amount of $225,000,
which loans bear interest at a rate of 6% per annum. No repayment date has yet
been set for these loans.
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
December 31, 1998 was $60,317, an increase of $18,274 from $42,043 at December
31, 1997
8
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Item 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Levcor International, Inc.
We have audited the accompanying balance sheet of Levcor International, Inc. as
of December 31, 1998 and the related statements of operations, stockholders'
deficiency and cash flows for the years ended December 31, 1998 and 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 Levcor International, Inc. at
December 31, 1998 and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
New York, New York
March 19, 1999
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<PAGE>
Levcor International, Inc.
BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 60,318
Accounts receivable 4,963
Due from factor 66,563
Inventories 1,411,100
Prepaid expenses 6,369
-----------
Total current assets 1,549,313
PLANT AND EQUIPMENT, net of accumulated
depreciation of $5,576 15,973
OIL AND GAS PROPERTIES (using full cost
method), net of accumulated depletion and
depreciation of $878,818 11,665
INTANGIBLE ASSETS, net of accumulated
amortization of $3,346 11,629
-----------
$ 1,588,580
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,003,549
Current maturities of long-term debt 282,800
Due to officer/shareholder 225,000
-----------
Total current liabilities 2,511,349
LONG-TERM DEBT, less current maturities 282,800
DUE TO OFFICER/SHAREHOLDER 720,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock - par value $ .56 per share; authorized,
15,000,000 shares; issued and outstanding,
1,764,299 shares 988,007
Capital in excess of par value 4,997,515
Accumulated deficit (7,911,091)
-----------
(1,925,569)
-----------
$ 1,588,580
===========
The accompanying notes are an integral part of this statement.
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Levcor International, Inc.
STATEMENTS OF OPERATIONS
Year ended December 31,
1998 1997
----------- -----------
Sales - Woven Fabrics Division $10,104,570 $ 3,349,048
Less cost of sales 8,974,339 2,974,072
----------- -----------
Gross profit 1,130,231 374,976
----------- -----------
Sales - Oil and gas 30,185 43,123
Less cost of sales 38,441 83,517
----------- -----------
Gross loss (8,256) (40,394)
Interest income and royalties 2,474
----------- -----------
1,124,449 334,582
Expenses
Selling expenses - Woven Fabrics Division
Salaries, benefits and payroll taxes 762,813 147,405
Commissions 142,518 55,382
Other selling expenses 195,231 105,040
----------- -----------
1,100,562 307,827
General and administrative expenses
Salaries, benefits and payroll taxes 127,792 55,347
Accounting and administrative fees 58,319 58,138
Audit fees 16,000 16,000
Directors' fees and expenses (3,750) 5,000
Factor fees 79,929 30,024
Insurance 13,793 11,106
Interest expense 272,520 155,927
Legal fees 33,064 19,859
Transfer agent fees 4,208 4,200
Shareholders' communications 22,262
Other business taxes 4,868 2,949
Other expenses 54,370 19,475
----------- -----------
Total general and administrative expenses 683,375 378,025
----------- -----------
Total expenses 1,783,937 685,852
----------- -----------
NET LOSS $ (659,488) $ (351,270)
=========== ===========
Net loss per common share - basic and diluted $(.38) $(.20)
===== =====
Weighted average number of shares outstanding 1,753,979 1,733,439
=========== ===========
The accompanying notes are an integral part of these statements.
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Levcor International, Inc.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common stock Capital in
-------------------------- excess of par Accumulated
Shares Amount value deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 1,723,499 $ 964,394 $ 5,003,566 $(6,900,333)
Shares issued for services rendered 10,000 5,600 (600)
Net loss (351,270)
----------- ----------- ----------- -----------
Balances at December 31, 1997 1,733,499 969,994 5,002,966 (7,251,603)
Shares issued for services rendered 10,000 5,600 (600)
Stock options exercised 20,800 12,413 (4,851)
Net loss (659,488)
----------- ----------- ----------- -----------
Balances at December 31, 1998 1,764,299 $ 988,007 $ 4,997,515 $(7,911,091)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
12
<PAGE>
Levcor International, Inc.
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (659,488) $ (351,270)
Adjustments to reconcile net loss to net cash
provided by operating activities
Write-down of oil and gas properties 5,333 47,520
Depletion, depreciation and amortization 14,805 15,415
Services paid in common stock 5,000 5,000
Changes in operating assets and liabilities,
net of assets acquired
Accounts receivable 4,689 (1,839)
Due from factor 460,629 (182,689)
Inventories 615,488 (1,150,268)
Prepaid expenses 1,091 2,116
Accounts payable and accrued expenses (421,683) 1,665,127
----------- -----------
Net cash provided by operating activities 25,864 49,112
----------- -----------
Cash flows from investing activities
Purchase of property and equipment and intangible asset (7,351) (29,173)
----------- -----------
Net cash used in investing activities (7,351) (29,173)
----------- -----------
Cash flows from financing activities
Advances from officer/shareholder 275,000 300,000
Exercise of stock options 7,562
Payment of long-term debt (282,800) (282,800)
----------- -----------
Net cash (used in) provided by financing activities (238) 17,200
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 18,275 37,139
Cash and cash equivalents at beginning of year 42,043 4,904
----------- -----------
Cash and cash equivalents at end of year $ 60,318 $ 42,043
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 272,520 $ 155,927
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Operations and Liquidity
Levcor International, Inc. (the "Company") is engaged in two
industry segments: the ownership of fractional interests in oil and
gas wells and leases with respect thereto; and the operation of a
woven fabric converting business that produces fabrics used in the
production of apparel. The Company sells its products to domestic
customers.
The Company continues to sustain substantial losses, which has
adversely affected the Company's liquidity. The Company required
cash advances from an officer/shareholder amounting to $275,000 and
$300,000 to pay the debt payment and interest that was due on May 1,
1998 and 1997, respectively. The Company is also required to make
another debt payment on May 1, 1999 amounting to approximately
$283,000. An officer/shareholder of the Company has agreed to
continue to personally support the Company's cash requirement to
enable the Company to meet its current obligations through December
31, 1999 and fund future operations. In addition, the Company plans
to aggressively market and sell its product and continue to contain
costs. Although there can be no assurance that these measures will
be successful, the Company believes that future operations and
support from an officer/shareholder will provide sufficient
liquidity to fund current operations.
2. Oil and Gas Properties
The Company accounts for oil and gas properties using a lower of
cost (full cost method) or market basis. The Company's oil and gas
properties financial statement carrying value was determined using
year-end oil and gas prices and operating costs in the individual
local producing areas. These have been held constant throughout the
life of the properties. Established decline rates have been used and
projected net revenues have been discounted ten percent a year in
arriving at the present value shown. Plugging and abandonment costs
are assumed to be balanced by the sale of lease equipment. The
present values are not necessarily indicative of values that would
be realized on the sale of these properties.
14
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE A (continued)
3. Earnings (Loss) Per Share
The computation of basic loss per share of common stock is based
upon the weighted average number of common shares outstanding during
the period. Diluted earnings per share include basic shares plus (in
periods in which they have a dilutive effect) the effect of common
shares contingently issuable upon exercise of stock options (see
Note H). Diluted loss per share is considered equal to basic loss
per share for all years presented, as the effect of other
potentially dilutive securities would be antidilutive.
4. Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated
service lives, principally by the straight-line method. Leasehold
improvements and leasehold cost are amortized over the term of the
lease or the service lives of the improvements, whichever is
shorter. The costs of additions and improvements which substantially
extend the useful life of a particular asset are capitalized. Repair
and maintenance costs are charged to expense. Upon sale or disposal,
the cost and related accumulated depreciation or amortization are
removed from the accounts and any gain or loss is included in
income. Property and equipment are written off when they become
fully depreciated.
Depletion, depreciation and amortization for the year ended December
31, 1998 were $7,950, $3,900 and $2,950, respectively, and for the
year ended December 31, 1997 were $13,400, $1,600 and $400,
respectively.
5. Inventories
Inventories are stated at the lower of cost (principally average
cost) or current value based on prevailing market prices.
Inventories consist of greige and work-in-process goods.
The Company estimates the markdowns required for the inventory based
upon future marketability as well as general economic conditions.
Consequently, an adverse change in those factors could affect the
Company's estimate of the markdowns.
15
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE A (continued)
6. Research and Development
Research and development costs are expensed as incurred. Such costs
were approximately $150,000 and $0 in 1998 and 1997, respectively,
and are included in cost of sales in the accompanying financial
statements.
7. Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for
Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for the estimated future tax effects of the temporary
differences between the financial reporting basis and tax basis of
assets and liabilities.
Deferred income taxes are recognized for the estimated future tax
effects of the temporary differences between the financial reporting
basis and the tax basis of assets and liabilities.
8. Statements of Cash Flows
For purpose of the statements of cash flows, the Company considers
all highly liquid debt instruments with a maturity of less than
three months at the date of purchase as cash equivalents.
9. Stock-Based Compensation Plans
The Company maintains a stock option plan, as more fully described
in Note H to the financial statements, accounted for using the
"intrinsic value" method pursuant to the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The fair value of options granted and the pro forma
effects on the Company's net loss and net loss per share are
disclosed pursuant to Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation."
16
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE A (continued)
10. Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE B - OIL AND GAS PROPERTIES
The Company holds various interests in oil and gas leases in the United
States. At December 31, 1998 and 1997, the Company held interests in 4
wells located in Oklahoma having a total working interest equivalent of
1.46 wells and a net revenue interest of 1.19 wells.
NOTE C - ACCOUNTS RECEIVABLE FACTORED
Under a factoring agreement, the factor purchases the trade accounts
receivable and assumes substantially all credit risks with respect to such
accounts. The agreement allows the Company to obtain advances from the
factor which bear interest at 1/2% above the bank's prime rate. The
amounts owed to the Company from the factor earn no interest.
NOTE D - LONG-TERM DEBT
Long-term debt at December 31, 1998 are as follows:
Promissory note payable in five equal consecutive
annual installments of $282,800, commencing on
May 1, 1996. The note shall bear interest prior
to maturity at the rate of 6% per annum. $565,600
Less current maturities 282,800
--------
$282,800
========
17
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE E - RELATED PARTY TRANSACTIONS
During 1998 and 1997, an officer/shareholder advanced $275,000 and
$300,000, respectively, to the Company to pay current obligations. The
amount bears interest at 6% and has no specified due date. Further, the
officer/shareholder has agreed not to require payment of $720,000 prior to
January 1, 2000.
NOTE F - INCOME TAXES
At December 31, 1998, the Company had a net tax operating loss
carryforward of approximately $6.3 million available to reduce taxable
income in future years, expiration of which occurs between 1999 and 2012
at the following respective amounts each year: $468,000, $771,000,
$564,000, $324,000, $690,000, $391,000, $317,000, $156,000, $147,000,
$188,000, $133,000, $473,000, $881,000 and $284,000. $534,000 of this loss
will expire in 2018. No assurance can be given as to the Company's ability
to realize the net operating loss carryforwards. Additionally, the net
operating loss carryforwards are subject to Internal Revenue Code Section
382, which limits the use of the net operating loss, if there is a change
in ownership.
A deferred tax asset for this net operating loss carryforward
(approximately $2.1 million) was reduced to zero by a valuation
allowance.
NOTE G - LITIGATION
The Company's interests in the Kotaneelee field are represented in trust
by Canada Southern in a statement of claim filed in the Canada court by
Canada Southern against Amoco Canada Petroleum Company Limited and other
parties, seeking forfeiture of the Kotaneelee field, damages and other
relief for breach of fiduciary duty, relating to their responsibility to
develop the field. On March 7, 1990, Canada Southern filed a statement of
claim in the Canada Court against the Amoco-Dome Group, Columbia, Mobil
and Esso seeking forfeiture of the Kotaneelee gas field, damages and other
relief for breach of fiduciary duty (the "Forfeiture Action"). The Company
was added as a party plaintiff to this action in November 1993. If such
claim is upheld, the Company could recover a 2
18
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE G (continued)
percent interest in the Kotaneelee field and damages. The defendants have
contested the claim and Canada Southern is pursuing discovery and trial.
Columbia filed a counterclaim seeking, if Canada Southern is successful in
its claims, repayment from Canada Southern, the Company and Magellan
Petroleum Corporation of all sums expended by Columbia on the Kotaneelee
fields before Canada Southern, the Company and Magellan Petroleum
Corporation are entitled to their interests. The trial commenced in
September 1996, and is ongoing. Based on discovered evidence, Canada
Southern has petitioned the Canada Court for leave to amend its complaint
to add a claim that the defendants failed to develop the field in a timely
manner.
The field operator has entered into a contract for the sale of Kotaneelee
gas. The Company believes that it is too premature to determine the
impact, if any, that this contract may have on the status of these cases.
The Company has been advised that under Canadian law certain costs (known
as "taxable costs") of a litigation may be assessed against a
nonprevailing party. Taxable costs consist primarily of attorney's and
expert witness fees incurred during a trial. In addition, a judge in
complex and lengthy trials has the discretion to increase an award of
taxable costs.
On October 27, 1989, in the Court of Queens Bench of Alberta, Judicial
District of Calgary, Canada (the Canada Court), Canada Southern filed a
statement of claim against the Amoco-Dome Group, Columbia, Mobil Oil
Canada Ltd. ("Mobil") and Esso Resources of Canada Ltd. ("Esso") seeking a
declaratory judgment regarding two issues relating to the Kotaneelee
field: (1) whether interest accrues on the carried interest account, which
is the account for costs recoverable by the working interest parties prior
to such time as the carried interest parties are entitled to participate
in revenues derived from the field's activities (Canada Southern maintains
it does not), and (2) whether expenditures for gathering lines and
dehydration equipment are expenditures chargeable to the carried interest
account (Canada Southern maintains they are). Mobil, Esso and Columbia
have filed answers essentially agreeing to the granting of the relief
requested by Canada Southern. The Amoco-Dome group has now admitted one of
two claims, i.e., that interest does not accrue on the carried interest
account.
19
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE H - STOCK OPTION PLAN
On December 8, 1992, the Board of Directors of the Company adopted a Stock
Option Plan (the "Plan"). The Plan, as amended, authorizes the Company to
grant options to purchase an aggregate of 500,000 shares of Common Stock
to induce employees and directors to remain in the employ or service of
the Company and its subsidiaries and to attract new employees. Options
granted under the Plan are intended to qualify as incentive stock options
("ISOs") within the meaning of Section 422A(b) of the Internal Revenue
Code of 1986 (the "Code"), as amended, or as nonincentive stock options
("NISOs"). The Plan is administered by the Board of Directors. The Plan
terminates in December 2002.
The Plan provides for discretionary grants of ISOs and NISOs to employees
(including directors or officers who are also employees) of the Company
and an automatic annual grant to each non-employee director of options to
purchase the number of shares derived by dividing $1,500 by the fair
market value of a share of Common Stock on the date of grant. The initial
per share option exercise price for an ISO may not be less than the fair
market value thereof on the date of such grant, or 110% of such fair
market value with respect to an employee who, at such time, owns stock
representing more than 10% of the total combined voting power of all
classes of stock of the Company. The initial per share option exercise
price for a NISO may not be less than 85% of the fair market value thereof
on the date of the grant of such option. The initial per share option
exercise price for the options granted to the nonemployee directors is the
fair market value of the common stock on the date of the grant thereof.
As described in Note A-7, the Company has adopted the disclosure-only
provisions of SFAS No. 123 and, accordingly, no compensation cost has been
recognized for grants made under its stock option plan. Had compensation
cost been determined based on the fair value at the grant date for stock
option awards in 1998 and 1997 in accordance with the provisions of SFAS
No. 123, the Company's net loss for 1998 and 1997 would have been
increased by approximately $37,000 and $22,000, respectively, and the
Company's net loss per share for 1998 and 1997 would have increased by
approximately $.02 and $.01 per share, respectively. During the initial
phase-in period of SFAS No. 123, such compensation may not be
representative of the future effects of applying this statement.
The weighted average fair value at date of grant for options granted
during 1998 and 1997 was $1.50 and $.25 per option, respectively. The fair
value of each option at date of grant was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions for grants in:
20
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE H (continued)
1998 1997
-------- --------
Risk-free interest rate 6% 6%
Expected life
Employees 10 years 10 years
Officers/directors 10 years 10 years
Expected volatility 335% 200%
The following table summarizes option activity for the years ended
December 31, 1998 and 1997:
Incentive options
------------------
Weighted
Number average
of exercise
options price
------- --------
Balance, December 31, 1996 222,100 $.395
Granted 12,000 .25
-------
Balance, December 31, 1997 234,100 .387
Granted 55,000 .625
Exercised (20,800) .363
Forfeited (5,000) .300
-------
Balance, December 31, 1998 263,300 $.440
=======
The following table summarizes information about stock options as of
December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------ ----------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life price exercisable price
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.25 to .$625 263,300 6.7 $.440 224,633 $.412
======= =======
</TABLE>
21
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE I - COMMITMENTS
The Company leases certain office space from a related party on a
month-to-month basis for a monthly fee of approximately $9,000.
NOTE J - MAJOR CUSTOMERS
For the year ended December 31, 1998, two customers of the Woven Fabrics
Division accounted for 31% and 12% of sales and for the year ended
December 31, 1997, one customer of the Woven Fabrics Division accounted
for 12% of sales.
NOTE K - PLANT AND EQUIPMENT
Property and equipment at December 31, 1998 are summarized as follows:
Property and equipment $21,549
Less accumulated depreciation and amortization (5,576)
-------
$15,973
=======
22
<PAGE>
Levcor International, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE L - SEGMENT INFORMATION
Segment information for December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Woven
Oil and gas fabrics Corporate Consolidated
-------- ----------- --------- ------------
<S> <C> <C> <C> <C>
1998
Sales to external customers $ 30,185 $10,104,570 $10,134,755
Segment profit (loss) (8,256) 29,669 $(680,901) (659,488)
Interest expense 272,520 272,520
Segment assets 15,492 1,521,894 51,194 1,588,580
1997
Sales to external customers $ 43,123 $ 3,349,048 $ 3,392,171
Segment profit (loss) (40,394) 67,149 $(378,025) (351,270)
Interest expense 155,927 155,927
Segment assets 29,355 2,586,581 49,053 2,664,989
</TABLE>
23
<PAGE>
Item 8. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
24
<PAGE>
PART III.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth information concerning each of the
directors and executive officers of the Company:
Names Age Position
- ----- --- --------
Robert A. Levinson 73 Chairman of the Board,
President and Secretary
John McConnaughy 69 Director
Edward H. Cohen 60 Director
Rudolph E. Bremser 67 Treasurer
Robert A. Levinson has been the Chairman of the Board, President and
Secretary of the Company since June 1989. From 1979 until May 1, 1995, Mr.
Levinson was the Chairman of the Board of Directors of Andrex Industries Corp.,
a company engaged in textile manufacturing and processing. Mr. Levinson is a
member of the Advisory Board of The National Dance Institute and The Harlem
School of the Arts, is Vice Chairman of the Board of Directors of The National
Committee of U.S.-China Relations Inc. and is the President and Chairman of the
Board of Directors of Carlyle Industries, Inc. (formerly known as Belding
Hemingway Corp.).
John McConnaughy has been a director of the Company since June 1989. Mr.
McConnaughy is Chairman and Chief Executive Officer of JEMC Corporation, a
company engaged in exploring investment opportunities. From 1981 until his
retirement in 1992, Mr. McConnaughy was the Chairman of the Board and Chief
Executive Officer of GEO International Corporation, a company engaged in screen
printing and oil services. Mr. McConnaughy also served as President of GEO
International Corporation from 1985 until his retirement in 1992. Mr.
McConnaughy serves as a director of Riddell Sports, Inc., Adrien Arpel, Inc.,
Mego Corporation, Transact International, Inc., Wave Systems Corp. (formerly
known as Cryptologies International Inc.) and DeVlieg-Bullard, Inc.
Edward H. Cohen has been a director of the Company since June 1998. Mr.
Cohen is a Senior Partner at Rosenman & Colin LLP, a law firm. Mr. Cohen also
serves as a director of Franklin Electronic Publishers, Inc., a designer and
developer of electronic products, Phillips-Van Heusen Corporation, a
manufacturer and retailer of apparel and footwear, and Merrimac Industries,
Inc., a designer and producer of microwave and radio frequency components.
Rudolph E. Bremser has served as the Company's Treasurer since December
1986. From September 1985 to December 1986, Mr. Bremser was an independent
international financial and tax consultant. From 1980 to 1985, Mr. Bremser was a
Senior Financial Representative of Chevron Overseas Petroleum, Inc.
25
<PAGE>
There are no arrangements or understandings pursuant to which any person
has been elected as a director or executive officer of the Company. Directors
are elected annually by the stockholders and hold office until the next annual
meeting of stockholders and until their respective successors are elected and
qualified. Executive officers are elected by the Board of Directors and hold
office until their respective successors are elected and qualified. There is no
family relationship among any directors or executive officers of the Company.
The Company believes that, for the year ended December 31, 1998, it has
complied with all filing requirements of Section 16(a) of the Securities
Exchange Act of 1934 applicable to its officers, directors and greater-than-10%
beneficial owners, except that Edward H. Cohen was delinquent in the filing of
his Form 3.
26
<PAGE>
Item 10. EXECUTIVE COMPENSATION.
The following table summarizes all compensation awarded to, earned by, or
paid to the President of the Company for services rendered in all capacities to
the Company for each of the Company's last three fiscal years. No other
executive officer of the Company received total salary and bonus in excess of
$100,000 during any of the last three fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
------------------------------ -------------------------
Payouts
-------
Other Securities
Name and Annual Underlying All Other
Principal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) (#) ($)
- ------------------ ---- ------- ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Levinson 1998 $25,000 - 0 - N/A N/A N/A
Chairman and 1997 $25,000 - 0 - N/A N/A N/A
President 1996 $25,000 - 0 - N/A N/A N/A
</TABLE>
Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year End Option Value Table
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options Options
Shares at Fiscal at Fiscal
Acquired Year-End(#) Year-End($)
On Value ------------- -------------
Exercise Realized Exercisable/ Exercisable/
Name # $ Unexercisable Unexercisable
- ---- -------- -------- ------------- -------------
Robert A. Levinson N/A N/A 187,500/- 0 - 300,938/- 0 -
Compensation of Directors
Directors who are not salaried employees of the Company receive an annual
fee of $2,500 and an annual grant (in January) of options to purchase the number
of shares of Common Stock derived by dividing $1,500 by the fair market value of
a share of Common Stock on the date of grant. In 1998, no options were granted
to non-employee directors.
27
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 29, 1999
with respect to the number of shares of the Common Stock beneficially owned by:
(i) each person known to the Company to be the beneficial owner of more than
five percent of the Common Stock; (ii) each of the directors of the Company; and
(iii) all of the directors and executive officers of the Company as a group.
Except as otherwise indicated, each such stockholder has sole voting and
investment power with respect to the shares beneficially owned by such
stockholder. A person is deemed to beneficially own a security if he has or
shares the power to vote or dispose of the security or has the right to acquire
it within 60 days.
Amount and Nature
of Beneficial Percent of
Name and Address Ownership Class
- ---------------- ------------------ ----------
Robert A. Levinson
1071 Avenue of the Americas
New York, NY 10018 353,175(1) 17.7%
John McConnaughy
1011 High Ridge Road
Stamford, CT 06905 28,775(2) 1.4%
Edward H. Cohen, Esq.
c/o Rosenman & Colin
575 Madison Avenue
New York, NY 10022 87,250(3) 4.4%
Rudolph Bremser
342 B Heritage Village
Southbury, CT 06488 6,667(4) *
All directors and executive
officers as a group (4 persons) 475,867(5) 23.9%
- ----------
* Less than 1% of class.
(1) Includes 187,500 shares of Common Stock subject to currently exercisable
options.
(2) Includes 18,800 shares of Common Stock subject to currently exercisable
options.
(3) Includes 82,250 shares owned by Rosenman & Colin LLP, of which Mr. Cohen is
a partner.
(4) Includes 1,667 shares of Common Stock subject to currently exercisable
options.
(5) Includes 207,967 shares of Common Stock subject to currently exercisable
options.
28
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In connection with the payments which the Company was required to make in
1996 and 1997 relating to the purchase of inventory pursuant to its purchase of
the Looms Division from Andrex, Mr. Levinson made the following loans to the
Company: (1) on May 1, 1996 for $370,000; (2) on May 1, 1997 for $300,000; (3)
on May 1, 1998 for $50,000; and (4) during the third quarter of 1998 for
$225,000, all of which bear interest at the rate of 6% per annum. No repayment
date has yet been set for any of these loans.
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
The following Financial Statements of the Company are included in Part II,
Item 7 of this report.
Report of Grant Thornton, LLP, Independent Auditors
Balance Sheet at December 31, 1998
Statements of Operations for the Years
Ended December 31, 1998 and 1997
Statement of Stockholders' Deficiency for
the Years Ended December 31, 1998
and 1997
Statements of Cash Flows for the Years
Ended December 31, 1998 and 1997
Notes to Financial Statements
29
<PAGE>
(a)(2) Exhibits:
The following exhibits are included in this report:
Exhibit Description
- ------- --------------------------------------------------------------------
2.1 Asset Purchase Agreement, dated as of May 1, 1995, between the
Company and Andrex Industries Corp., incorporated herein by
reference to the Company Current Report on Form 8-K filed on June
12, 1995.
3.1 Certificate of Incorporation filed August 17, 1967, incorporated
herein by reference to the Company's Registration Statement on Form
8-B filed on November 27, 1967.
3.2 Amendment to Certificate of Incorporation filed August 17, 1972,
incorporated herein by reference to the Company's Current Report on
Form 8-K for the month of August 1972.
3.3 Amendment to Certificate of Incorporation filed December 17, 1984,
incorporated herein by reference to the Company's Form N-2 Amendment
No. 2 filed on April 3, 1987.
3.4 Amendment to Certificate of Incorporation filed September 8, 1995,
incorporated herein by reference to the Company's Current Report on
Form 8-K filed on September 12, 1995.
3.5 By-Laws as amended, incorporated herein by reference to the
Company's Form N-2 Amendment No. 4 filed on May 2, 1989.
4 Specimen form of the Company's Common Stock certificate,
incorporated herein by reference to the Company's Form 10-KSB filed
on March 24, 1997.
10.1+ 1992 Stock Option Plan, incorporated herein by reference to the
Company's Form 10-K filed on March 30, 1993.
10.2 Occupancy and Use Agreement, dated June 1, 1995, between the Company
and Andrex Industries Corp., incorporated herein by reference to the
Company's Current Report on Form 8-K filed on June 12, 1995.
10.3 Discount Factoring Agreement, dated November 14, 1997, between the
Company and Congress Talcott Corporation, incorporated herein by
reference to the Company's Form 10-KSB/A filed on April 17, 1998.
10.4 Guarantee and Waiver, dated November 14, 1997, by Robert A. Levinson
to the Discount Factoring Agreement, dated November 14, 1997,
between the Company and Congress Talcott Corporation, incorporated
herein by reference to the Company's Form 10-KSB/A filed on April
17, 1998.
30
<PAGE>
10.5 Factoring Agreement, dated September 17, 1998, between the Company
and the CIT Group/Commercial Services, Inc., incorporated herein by
reference to the Company's Form 10-QSB filed on November 16, 1998.
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
Company's balance sheets and statements of operations dated as of
and for the year ended December 31, 1998, and is qualified in its
entirety by reference to such financial statements.
- ----------
+ Compensatory plan or arrangement required to be filed as an exhibit hereto.
31
<PAGE>
(b) Reports on Form 8-K:
None
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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.
By /s/ Robert A. Levinson
--------------------------
Robert A. Levinson
Chairman of the Board,
President and Secretary March 31, 1999
By /s/ Rudolph E. Bremser
--------------------------
Rudolph E. Bremser
Treasurer (Chief Financial
and Accounting Officer) March 31, 1999
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
/s/ Robert A. Levinson Chairman of the Board; March 31, 1999
- ----------------------------- President; Secretary; Director
Robert A. Levinson
/s/ John McConnaughy
- ----------------------------- Director March 31, 1999
John McConnaughy
/s/ Edward H. Cohen Director March 30, 1999
- -----------------------------
Edward H. Cohen
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements included in the Company's Form 10-KSB for the
year ended December 31, 1998, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 60,318
<SECURITIES> 0
<RECEIVABLES> 71,526
<ALLOWANCES> 0
<INVENTORY> 1,411,100
<CURRENT-ASSETS> 1,549,313
<PP&E> 927,007
<DEPRECIATION> 887,740
<TOTAL-ASSETS> 1,588,580
<CURRENT-LIABILITIES> 2,211,349
<BONDS> 1,002,800
0
0
<COMMON> 987,242
<OTHER-SE> (2,912,811)
<TOTAL-LIABILITY-AND-EQUITY> 1,588,580
<SALES> 10,134,755
<TOTAL-REVENUES> 10,137,229
<CGS> 9,012,780
<TOTAL-COSTS> 10,796,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272,520
<INCOME-PRETAX> (659,488)
<INCOME-TAX> 0
<INCOME-CONTINUING> (659,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (659,488)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
