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 3/31/00
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to ______________
Commission file number 811-3584
Levcor International, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 06-0842701
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
462 Seventh Avenue, New York, NY 10018
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(203) 264-7428
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(Issuer's Telephone Number)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal year, if Changed Since Last
Report)
Check whether the issuer; (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No |_|
As of May 12, 2000, 2,371,299 shares of the issuer's common stock, par value
$.56 per share, were outstanding.
Transitional Small Business Disclosure Format(check one): Yes |_| No |X|
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Table of Contents
<TABLE>
Page
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Part I.......................................................................................................1
Item 1. Condensed Financial Statements
Balance Sheet as of March 31, 2000 (Unaudited).............................................1
Statements of Operations for the
Three Months Ended March 31, 2000 and
March 31, 1999 (Unaudited).................................................................2
Statements of Cash Flows for the
Three Months Ended March 31, 2000 and
March 31, 1999 (Unaudited).................................................................3
Note to Condensed Financial Statements (Unaudited).........................................4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation...............................................5
Part II......................................................................................................7
Item 6. Exhibits and Reports on Form 8-K...........................................................7
Signatures...........................................................................................8
Exhibit 27...........................................................................................9
</TABLE>
<PAGE>
PART I.
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Levcor International, Inc.
BALANCE SHEET
March 31, 2000
(Unaudited)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalent $ 8,232
Accounts receivable 17,594
Due from factor --
Inventories 2,648,179
Prepaid expenses and other current assets 45,165
-----------
Total current assets 2,719,170
PLANT AND EQUIPMENT, net of accumulated depreciation of $12,215 51,769
ASSETS HELD FOR SALE 412,200
OIL AND GAS PROPERTIES (using full cost method), net of accumulated
depletion and depreciation of $883,198 39,526
INTANGIBLE ASSETS, net of accumulated amortization of $9,904 36,063
-----------
$ 3,258,728
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,436,619
Current maturities of long-term debt 1,026,166
-----------
Total current liabilities 4,462,785
LONG TERM DEBT, less current maturities 259,450
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 2,371,299 shares 1,327,927
Capital in excess of par value 5,254,658
Treasury Stock (74,062)
Accumulated deficit (8,692,030)
-----------
(2,183,507)
-----------
$ 3,258,728
===========
</TABLE>
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)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenue
Sales - Fabric Divisions $3,830,439 $3,146,558
Less cost of sales 3,207,444 2,548,295
----------- -----------
Gross profit 622,995 598,263
----------- -----------
Sales - Oil and gas 5,383 5,798
Less cost of sales 10,686 3,570
----------- -----------
Gross (loss)/profit (5,303) 2,228
----------- -----------
Gain on Asset Sales and Other Income 70,244 --
----------- -----------
Total Revenue 687,936 600,491
Expenses
Selling expenses - Fabric Divisions
Salaries, benefits and payroll taxes 507,163 203,430
Commissions 25,133 10,965
Product development expenses 59,465 44,510
Other selling expenses 93,983 24,459
----------- -----------
Total selling expenses 685,744 283,364
General and administrative expenses
Salaries, benefits and payroll taxes 58,352 39,328
Accounting and administrative fees 17,734 27,771
Audit fees 8,751 4,250
Directors' fees and expenses 1,250 1,250
Factor's fees 24,547 20,520
Insurance 34,446 3,237
Interest expense 91,314 76,286
Legal fees 9,100 7,500
Rent 28,489 627
Transfer agent fees 1,066 1,050
Other business taxes 4,916 3,110
Other expenses 22,136 3,814
----------- -----------
Total general and administrative expenses 302,101 188,743
----------- -----------
Total expenses 987,845 472,107
----------- -----------
NET (LOSS)/EARNINGS (299,909) 128,384
Accumulated deficit - beginning of year (8,392,121) (7,911,091)
----------- -----------
Accumulated deficit - end of quarter ($8,692,030) ($7,782,707)
----------- -----------
Average number of shares outstanding 2,369,057 1,765,549
----------- -----------
Net (loss)/earnings per common share ($0.13) $0.07
=========== ===========
</TABLE>
The accompanying note is an integral part of these statements
2
<PAGE>
Levcor International, Inc.
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net (loss)earnings ($ 299,909) $ 128,384
Adjustments to reconcile net (loss)/earnings to net
cash used in operating activities
Depletion, depreciation and amortization 7,020 2,518
Services paid in common stock 18,000 5,000
Changes in operating assets and liabilities, net of assets acquired
Accounts receivable 41,643 (81,013)
Due from factor (334,236)
Inventories (325,191) (824,650)
Prepaid expenses 17,349 2,479
Accounts payable and accrued expenses 606,375 1,049,406
----------- -----------
Net cash provided by/(used in) operating activities 65,287 (52,112)
----------- -----------
Cash flows (used in) investing activities
Purchase of property and equipment and intangible assets (60,100) --
----------- -----------
Net cash (used in) investing activities (60,100) --
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NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 5,187 (52,112)
Cash and cash equivalents at beginning of year 3,045 60,318
----------- -----------
Cash and cash equivalents at end of quarter $ 8,232 $ 8,206
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for Interest $ 124,048 $ 76,286
</TABLE>
The accompanying note is an integral part of these statements.
3
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Levcor International, Inc.
NOTE TO CONDENSED FINANCIAL STATEMENTS
Three Months Ended March 31, 2000
(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, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000. 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, 1999.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations:
The Company's sales for the Fabric Divisions for the three months ended
March 31, 2000 were $3,830,439, an increase of $683,881 or 22% from $3,146,558
for the same period in 1999. The cost of sales of the Fabric Divisions in the
first quarter of 2000 increased 26%, from $2,548,295 in 1999 to $3,207,444 in
2000. The gross profit on sales for the Fabric Divisions for the first three
months of 2000 was thus $622,995, an increase of $24,732 or 4% from $598,263 in
1999. Most of the increases are attributed to the operations of the Andrex Knit
Division which commenced upon acquisition effective July 1, 1999. During the
three months ended March 31, 2000, the Company achieved a gain on asset sales
and other income totaling $70,244 against which no such income was recorded in
the same 1999 period. Finally, the 2000 first quarter reflected a gross loss
from oil and gas operations of $5,303, while during the same period of 1999 a
gross profit of $2,228 was achieved.
The Company's total expenses for the three months ended March 31, 2000
were $987,845 an increase of $515,738 or 109% from $472,107 in the same period
in 1999. Such increase was due to the combined increases of (i) selling expenses
of the Fabric Divisions of $402,380, or 142%, compared to the 1999 first
quarter; and (ii) an increase in general administrative expenses of $113,358, or
60%; both such increases were predominately due to increases in salaries,
benefits and payroll taxes and related expenses associated with the acquisition
which created the Andrex Knits Division. It is to be noted in that regard that
two executives of Andrex Industries Corp., whose services were employed by the
Company to facilitate the transition completed their services as of March 31,
2000.
As a result of the foregoing, the Company reflected a net loss of $299,909
in the three months ended March 31, 2000 compared to net earnings of $128,384 in
the same 1999 period.
Liquidity and Capital Resources
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 pays 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 woven fabric inventory from
Andrex, the Company issued a promissory note to Andrex, which bore interest at
the rate of 6% per annum, pursuant to which the Company, commencing on May 1,
1996 and continuing through May 1, 2000, was required to make five annual
payments of $282,800 to Andrex. In order to meet the $282,800 payments that were
due on
5
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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. On May 1, 1999, the Company from its own resources, made
the required payment of $282,800; and on July 1, 1999, the Company prepaid the
final installment of $282,800 due May 1, 2000, utilizing a portion of an
additional loan given by Mr. Levinson on July 1, 1999 of $500,000.
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, 2000.
On September 2, 1999, the Company entered into an Asset Purchase
Agreement, dated September 2, 1999 (the "Purchase Agreement"), with Andrex,
pursuant to which the Company purchased (1) Andrex's inventory; (2) Andrex's
machinery and equipment; (3) Andrex's furniture, fixtures and supplies located
at 1071 Avenue of the Americas, New York, New York 10018; (4) Andrex's sales
orders; and (5) Andrex's trade name "Andrex Knits". The purchase price
comprised: (1) cash in the amount of $660,000; (2) a promissory note
("Promissory Note 1") in the principal amount of $282,450; and (3) a promissory
note ("Promissory Note 2") in the principal amount equal to the book value of
July 1, 1999 of the inventory purchased by the Company, the valuation of which
was initially agreed to be $1,214,750. The Promissory Notes both bear interest
at 6% per annum and are due on April 1, 2001.
The Company funded the $660,000 cash payment with a promissory note due to
CIT Group bearing interest payable at 8.5%, principal being repayable with
proceeds from the sale of the machinery and equipment purchased by the Company.
At March 31, 2000 the remaining principal due to CIT Group was $75,000.
Promissory Note 1 was to be repaid with the sale proceeds of the machinery and
equipment once the CIT Group promissory note was repaid. Promissory Note 2,
pursuant to the Purchase Agreement's Post-Closing Adjustment, was reduced to a
balance of $948,036 at December 31, 1999 and is to be paid down with proceeds
from the sale of the inventory purchased by the Company, with interest accrued
on outstanding balances.
The Company believes that cash generated from the Company's sale of woven
fabrics produced by the Company's Paradox Woven Division, the sale of knit
fabrics produced by the Company's newly formed Andrex Knits 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 an oil and gas well will be sufficient to
fund the Company's operations for 2000. The Company's unrestricted cash and cash
equivalents at March 31, 2000 was $8,232, an increase of $5,187 from $3,045 at
December 31, 1999.
Seasonality
The business of both the Paradox Woven Division and the Andrex Knits
Division is seasonal. The Paradox Woven Division typically realizes higher
revenues and operating income in the first and fourth calendar quarters, while
the Andrex Knits Division's realizations are in the second and third calendar
quarters. Such seasonality takes into account the standard lead time required by
the fashion industry to manufacture apparel which corresponds to their
respective retail selling seasons.
6
<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, 2000, 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.
7
<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 13, 2000 /s/ Robert A. Levinson
----------------------------- ----------------------------------
Robert A. Levinson
Chairman of the Board,
President and Secretary
Date May 13, 2000 /s/ Rudolph E. Bremser
----------------------------- ----------------------------------
Rudolph E. Bremser
Treasurer
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
for the Quarterly Period Ended March 31, 2000, 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-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 8,232
<SECURITIES> 0
<RECEIVABLES> 17,594
<ALLOWANCES> 0
<INVENTORY> 2,648,179
<CURRENT-ASSETS> 2,719,170
<PP&E> 1,444,875
<DEPRECIATION> 905,317
<TOTAL-ASSETS> 3,258,728
<CURRENT-LIABILITIES> 4,462,785
<BONDS> 979,450
0
0
<COMMON> 1,327,927
<OTHER-SE> (3,511,434)
<TOTAL-LIABILITY-AND-EQUITY> 3,258,728
<SALES> 3,835,822
<TOTAL-REVENUES> 3,906,066
<CGS> 3,218,130
<TOTAL-COSTS> 4,205,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,314
<INCOME-PRETAX> (299,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (299,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (299,909)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
