SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997...Commission File Number 1-155
THE LEHIGH GROUP INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-1920670
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
810 SEVENTH AVENUE, NEW YORK, NY 10019
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 333-2620
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 1, 1997
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Common Stock, par value 11,276,750 shares
$.001 per share
THE LEHIGH GROUP INC. AND SUBSIDIARIES
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996 1
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 2-3
Consolidated Statement of Changes in
Shareholder Equity (Deficit)
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 3. Defaults upon Senior Securities 9
Item 6. Exhibits and Reports on Form 8-K 9
PART I - FINANCIAL INFORMATION
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 1997 1996
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Revenues earned $ 2,525 $ 3,120
Cost of revenues earned 1,605 2,203
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Gross profit 920 917
Selling, general and administrative expenses 845 994
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Operating income (loss) 75 (77)
Other income (expense):
Interest expense (119) (107)
Interest and other income 6 3
Amortization of deferred finance (7) --
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(120) (104)
Loss before income taxes (45) (181)
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Net Loss $ (45) $ (181)
============ ============
Loss per share-Primary and Fully Diluted
Net Loss $ (0.01) $ (0.02)
Weighted average Common Shares
and share equivalents outstanding
Primary and Fully diluted 10,891,333 10,339,250
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
1
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
1997 1996
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(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 586 $ 471
Accounts receivable, net of
allowance for doubtful
accounts of $342 and $342 4,051 3,581
Inventories, net 1,421 1,215
Prepaid expenses and other current assets 179 279
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Total current assets 6,237 5,546
Property, plant and equipment, net of
accumulated depreciation and
amortization 51 50
Other assets 29 29
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Total assets $6,317 $5,625
====== ======
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
2
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
1997 1996
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(Unaudited) (Audited)
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 390 $ 390
Accounts payable 1,394 954
Accrued expenses and other liabilities 1,612 1,642
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Total current liabilities 3,396 2,986
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Long-term debt, net of current maturities 2,752 2,725
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Commitments and contingencies -- --
Preferred stock, par value $.001;
authorized 5,000,000
shares none issued
Common stock, par value $.001
authorized shares 100,000,000,
in 1996 and 1995; shares issued
10,339,250 in 1996 and 1995
which excludes 3,016,249 shares
held as treasury stock in 1996 and 1995,
respectively 12 11
Additional paid-in capital 106,893 106,594
Accumulated deficit from January 1, 1986 (105,082) (105,037)
Treasury stock - at cost (1,654) (1,654)
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Total shareholders' equity (deficit) 169 (86)
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT) $ 6,317 $ 5,625
========= =========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
3
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(IN THOUSANDS)
Additional Accumulated Treasury
Common Paid in Deficit From Stock
Stock Capital Jan. 1, 1986 At Cost Total
-------- -------- ------------ ------- -------
Balance January 1, 1996 $ 11 $ 106,594 $(104,749) $ (1,654) $ 202
Net loss -- -- (181) -- (181)
Balance March 31, 1996 $ 11 $ 106,594 $(104,930) $ (1,654) $ 21
========= ========= ========= ========= =========
Balance January 1, 1997 $ 11 $ 106,594 $(105,037) $ (1,654) $ (86)
Debenture Conversion $ 1 299 -- -- 300
Net loss -- -- (45) -- (45)
Balance March 31, 1997 $ 12 $ 106,893 $(105,082) $ (1,654) $ 169
========= ========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 1996
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(in thousands)
Cash flows from operating activities:
Net loss $ (45) $(181)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1 11
Changes in assets and liabilities:
Accounts Receivable (470) (15)
Inventories-net (206) 21
Prepaid and other current assets 100 (21)
Accounts payable 440 77
Accrued expenses (30) 74
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Net cash used in operating activities (210) (34)
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Cash flows from investing activities:
Capital expenditures -- --
Net cash provided by (used in) investing activities (2) (1)
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Cash flows from financing activities:
Net borrowings from C.I.T. Revolver 327 --
Net payments under bank debt -- (90)
Repayment of Capital leases -- (4)
Convertible Debenture -- 300
Net cash provided by (used in) financing activities 327 206
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Net changes in cash 115 171
Cash at beginning of period 471 347
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Cash at end of period $ 586 $ 518
===== =====
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial information for the three months ended March 31, 1997 and 1996 is
unaudited. However, the information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary for the fair statement of results for the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes included in the Company's December 31, 1996 Report on Form 10-K.
The results of operations for the three month period ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full year.
Loss per common share is calculated by dividing net loss by the weighted average
number of common shares and share equivalents outstanding. For the periods
presented, there were no common stock equivalents included in the calculation,
since they would be antidilutive.
2. SUPPLEMENTARY SCHEDULE
1997 1996
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(in thousands)
Statement of cash flows
Three months ended March 31,
Cash paid during the three months for:
Interest $ 76 $ 64
Income taxes 1 4
Supplemental disclosure of non-cash financing activities:
On February 7, 1997, First Medical Corporation elected to convert the debenture
into 937,500 shares of the Company's common stock.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER OF 1997 IN COMPARISON
WITH FIRST QUARTER OF 1996
Revenues earned for the first quarter of 1997 were $2.5 million, a
decrease of $595,000 or 19% compared to the first quarter of 1996. This decrease
in revenues was due to the sale of HallMark's export operation in Miami.
Gross profit as a percentage of revenues earned increased to 36% in the
first quarter of 1997, from 29% in the first quarter of 1996 as a result of
closing HallMark's export operation in Miami, which operated at lower gross
margins.
Selling, general and administrative expenses decreased by $149,000 in the
first quarter of 1997 or 15% as compared to the first quarter of 1996. The
decrease was due mostly to the sale of HallMark's export operation in Miami.
The factors discussed above resulted in an operating income of $75,000 in
the first quarter of 1997, as compared to an operating loss of $77,000 in the
first quarter of 1996.
There was no provision for income taxes in both 1997 and 1996 due to the
Company's operating losses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 the Company had working capital of $2.8 million
(including cash of $586,000). At December 31, 1996 the Company had working
capital of $2.6 million (including cash of $471,000).
7
On October 29, 1996 in connection with the execution of a definitive merger
agreement between the Company and First Medical Corporation, the Company issued
a convertible debenture in the amount of $300,000 plus interest at two (2%)
percent per annum over the prime lending rate of Chase Manhattan Bank, N.A.
payable on the 1st day of each subsequent month next ensuing through and
including 24 months thereafter. On the 24th month, the outstanding principal
balance and all accrued interest shall become due and payable.
The proceeds of the loan from First Medical Corporation were used to
satisfy the loan the Company previously obtained from DHB on June 11, 1996. On
February 7, 1997, First Medical Corporation elected to convert the debenture
into 937,500 shares of the Company's common stock.
The Company continues to be in default in the payment of interest
(approximately $664,000 interest was past due as of March 31, 1997) on the
$390,000 aggregate principal amount of its 13-1/2% Senior Subordinated Notes due
May 15,1998 ("13-1/2% Notes") and 14-7/8% Subordinated Debentures due October
15, 1995 ("14-7/8% Debentures") that remain outstanding and were not surrendered
to the Company in connection with its financial restructuring consummated in
1991. The Company has been unable to locate the holders of the 13-1/2% Notes and
14-7/8% Debentures (with the execption of certain of the 14-7/8 Subordinated
Debentures which were retired during 1996). The Company does not presently have
sufficient funds to repay its outstanding indebtedness under the 13-1/2% Notes
and 14-7/8% Debentures.
On April 10, 1995 a judgment was entered against the Company for $260,969
plus interest and legal fees (see "Part II, Item 1 Legal Proceedings").
8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The State of Maine and Bureau of Labor Standards commenced an action in
Maine Superior Court on or about November 29, 1990 against the Company and Dori
Shoe Company (an indirect former subsidiary) to recover severance pay under
Maine's plant closing law. The case was tried without a jury in December 1994.
Under that law, an "employer" who shuts down a large factory is liable to the
employees for severance pay at the rate of one week's pay for each year of
employment. Although the law did not apply to the Company when the Dori Shoe
plant was closed it was amended so as to arguably apply to the Company
retroactively. In a prior case brought against the Company (then known as Lehigh
Valley Industries) and its former subsidiary under the Maine severance pay
statute prior to its amendment, the Company was successful against the State of
Maine (see CURTIS V. LOREE FOOTWEAR AND LEHIGH VALLEY INDUSTRIES, 516 A. 2d 558
(Me. 1986).
The Superior Court by decision docketed April 10, 1995 entered judgement in
favor of the former employees of Dori Shoe Company against Dori Shoe and the
Company in the amount of $260,969.11 plus prejudgment interest and reasonable
attorneys' fees and costs to the Plaintiff upon their application pursuant to
Maine Rules of Civil Procedure 54(b) (3) (d). The Company filed a timely appeal
appealing that decision and the matter was argued before the Maine Supreme
Judicial Court on December 7, 1995. Prejudgment interest will accrue at an
annual rate of approximately $20,800 from November 29, 1990.
On February 18, 1997, the Supreme Judicial Court of Maine affirmed the
Superior Court's decision. The Company is currently considering an appeal to the
United States Supreme Court. Approximately $350,000 has been accrued by the
Company relating to this judgment.
The Company is involved in other minor litigation, none of which is
considered by management to be material to its business or, if adversely
determined, would have a material adverse effect on the Company's financial
condition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company continues to be in default in the payment of interest
(approximately $664,989 interest is past due as of March 31, 1997) on $390,000
principal amount of 13- 1/2% Notes and 14-7/8 Debentures.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE LEHIGH GROUP INC.
By: /S/ Salvatore J. Zizza
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Salvatore J. Zizza
Chairman of the Board, President
and Chief Executive Officer
Dated: May 1, 1997