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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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 000-22653
Coventry Industries Corp.
(Name of small business issuer in its charter)
Florida
(State or other jurisdiction of incorporation or organization)
65-0353816
(I.R.S. Employer Identification No.)
7777 Glades Road, Suite 211, Boca Raton, FL 33434
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 561-488-4802
Securities registered under Section 12(b) of the Exchange Act:
none
(Title of each class)
Name of each exchange on which registered
not applicable
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
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 [ ]
Check if there is no 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 the registrant'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. [x]
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State issuer's revenues for its most recent fiscal year. $7,869,981 for
the 12 months ended June 30, 1998.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. The aggregate market value of the voting stock held by
non-affiliates computed at the closing bid price for which the Company's common
stock at reported on The Nasdaq SmallCap Market(TM) August 31, 1998 is
approximately $3,361,539.
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date. As of August 31, 1998,
3,078,594 shares of Common Stock are issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) of
the Securities Act of 1933 ("Securities Act"). Not Applicable.
Transitional Small Business Disclosure Form (check one):
Yes No X
PART I
ITEM 1. Description of Business
GENERAL
Coventry Industries Corp., formerly known as Workforce Systems Corp.
(the "Company"), is a Florida corporation formed on August 17, 1992 to seek
acquisition possibilities throughout the United States and to make acquisitions
or enter into other business endeavors to the extent its limited assets would
allow. Pursuant to this strategy, on June 14, 1994 Mr. F. W. Miller, the
Company's then principal shareholder, President and Chairman, sold an aggregate
of 4,550 shares of the Company's Common Stock owned by him, representing
approximately 55% of the Company's then issued and outstanding stock, in a
private transaction exempt from registration under the Securities Act of 1933,
as amended (the "Act") pursuant to Section 4(2) thereof to Yucatan Holding
Company, a Florida corporation ("Yucatan"), for $60,000. Concurrent with the
purchase of the stock by Yucatan, the Company's then current officers and
directors resigned and the Company elected new officers and directors.
Effective June 30, 1994 the Company acquired 51.9% of the issued and
outstanding stock of Outside Industrial Services, Inc., a Tennessee corporation
formed in 1982("OIS") for 70,000 shares of the Company's Series B $5.00
Cumulative Convertible Preferred Stock ("Series B Preferred") from an
unaffiliated third-party in a private transaction exempt from registration under
the Act pursuant to Section 4(2) thereof. On May 30, 1996 the holder of the
Series B Preferred converted such shares into 17,500 shares of the Company's
Common Stock.
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Also effective June 30, 1994 the Company acquired all of the issued and
outstanding stock of Prime Florida, Inc., a Florida corporation ("Prime") from
Yucatan, which was an affiliate of the Company, for 187,500 shares of the
Company's Common Stock in a private transaction exempt from registration under
the Act pursuant to Section 4(2) thereof. Prime's sole assets included its
rights under a management services agreement with OIS which entitled Prime to
all the cash flow from OIS, together with a 7.4% interest in OIS.
Giving effect to both the 51.9% interest in OIS the Company acquired
from the unaffiliated third party, together with the 7.4% interest in OIS the
Company acquired through its ownership of Prime, the Company then owned 59.3% of
the issued and outstanding stock of OIS. On November 30, 1994 the Company
exchanged 30 shares of its Series A Preferred Stock for 155 shares of the common
stock of OIS thereby completing its plan to acquire at least 80% of OIS which
began in June 1994. Following such share exchange, the Company is the beneficial
owner of approximately 81% of OIS.
On November 4, 1994 the Company entered into an agreement (the
"Naturale Agreement") with Naturale Home Products, Inc. ("Naturale"), an
unaffiliated third party, whereby the Company was named the exclusive
manufacturer through a then to- be-established wholly-owned subsidiary of the
Company for all products developed and marketed by Naturale, including the
ThawMaster(TM) thawing trays, Naturale's initial product. In addition to the
revenue to be generated through the manufacturing and sale by the Company of the
products to Naturale, the Company was entitled to a royalty of $.30 to $.50 per
unit in perpetuity on all products sold by Naturale. Following the execution of
the Naturale Agreement, in 1994 the Company formed NHP Manufacturing Corp., a
Florida corporation ("NHP").
After initially utilizing contract manufacturers to produce
ThawMaster(TM) thawing trays, the Company determined to sub-contract out the
milling and anodization of the trays to other fabricators who were unaffiliated
third parties and to internally perform the finishing stages of the thawing
trays, including silk screening, assembly, packaging and shipping. In the spring
of 1995 the Company expanded its operations and began to fully internalize the
production of the thawing trays, with the exception of the anodization, through
a series of events which led to the acquisition of IFR as described below. This
was the first step in achieving the Company's goal with respect to
diversification of its operations and revenue base. Subsequently, during fiscal
1998, the Company determined that this product line was no longer viable due to
competition in the market place from lesser quality and lower price
alternatives. At June 30, 1998, the Company has suspended all manufacturing and
marketing efforts of this product. The Company has made a provision for the
balance of the assets.
On May 22, 1995 the Company acquired 100% of the issued and outstanding
capital stock of Industrial Fabrication & Repair, Inc. ("IFR") from Lester E.
Gann in exchange for 31,481 shares of the Company's Common Stock in a private
transaction exempt from registration under the Act pursuant to Section 4(2)
thereof. IFR, a Tennessee corporation formed in 1979 and based in Knoxville,
Tennessee, provided machining, welding, specialty design and fabrication for
custom applications to clientele from various industries including paper, steel
mills, rock quarry operations, coal mining applications and bottling facilities.
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In July 1996 IFR expanded its scope of business though the formation of
Maintenance Requisition Order Corp., a Florida corporation ("MRO"). MRO, is an
industrial supply house representing several lines of power transmissions
products, such as gear boxes, bearings and couplings, which are commonly used in
industrial manufacturing and operating facilities. MRO further diversified IFR's
business base insomuch as historically IFR had been a fabricator and maintenance
provider without the additional competitive advantage of being an authorized
factory distributor for many of the components used in its business. During the
current fiscal year, the Company merged the operations of MRO's Cleveland,
Tennessee facility into the Company's IFR Knoxville, Tennessee facility.
In October 1995, the Company formed a consumer products division and
incorporated Products That Produce, Inc., a Florida corporation ("PTP"). PTP's
mission was to identify and market new consumer products that are both
innovative and moderately priced. The first product undertaken by PTP was Mr.
Food's AlloFresh. The product was being marketed under an endorsement by Art
Ginsburg, the nationally syndicated T.V. chef known as Mr. Food. Made naturally
from minerals, non-toxic and environmentally safe, Mr. Food's AlloFresh works to
prevent food decay and eliminates bacteria, moisture, mold, mildew and odors in
refrigerators, kitchen and around the house. The product had its debut in June
1996 through a nationwide direct response television commercial, with this
initial introduction followed by introduction into the retail market place
through mass merchandisers, grocery and drug store chains. During fiscal 1998,
the Company suspended the operations of PTP due to the lack of revenues
generated by Mr Food's Allofresh. The Company is currently evaluating other
possible marketing and distribution channels for the product. There can be no
assurances that the Company will be successful in these endevours.
In February 1996 the Company acquired 100% of the issued and
outstanding capital stock of American Industrial Management, Inc., a Tennessee
corporation formed in 1995 ("AIM") from Messrs. Robert Lovelace and David Debuty
and Jones Leasing, Inc. in a private transaction exempt from registration under
the Act pursuant to Section 4(2) thereof in exchange for 4,375 shares of the
Company's Common Stock. AIM, founded in 1995 and based in Knoxville, Tennessee,
provides industrial personnel for light manufacturing and assembly line
operations to businesses located in the East Tennessee area. In April 1998, AIM
was sold to Global Industrial Services. (see below)
On April 3, 1997 the Company effected a one for four reverse stock
split of its issued and outstanding Common Stock. This stock split, which was
effected in connection with the Company's pending application for listing of its
Common Stock on The Nasdaq SmallCap Market(TM), resulted in the pro-rata
adjustment of the holdings of all Common Stockholders so that while the number
of issued and outstanding shares of Common Stock was reduced, the Common
Stockholders retained their pro-rata percentage of ownership interest in the
Company. Management of the Company elected to effect the stock split so as to
attempt to ensure the Company would meet the Nasdaq listing requirement of a
trading price of at least $3.00 per share. All share numbers herein have been
adjusted to reflect the stock split.
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In May 1997 the Company further expanded its Manufacturing Division
through the acquisition of 100% of the issued and outstanding stock of Federal
Supply, Inc. and Federal Fabrication, Inc. (collectively, "Federal") from
Messrs. Robert Hausman and John Murray in a private transaction exempt from
registration under the Act pursuant to Section 4(2) thereof in exchange for
110,000 shares of the Company's Common Stock. Federal Supply, Inc. and Federal
Fabrication, Inc. are both Florida corporations formed in 1994 and 1996,
respectively. Federal is a fabricator and distributor of custom-designed fire
sprinkler systems and components. In connection therewith, Robert Hausman was
elected to the Company's Board of Directors and appointed President of the
Company. See Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
In September 1997 the Company acquired 100% of the issued and
outstanding capital stock of LPS Acquisition Corp. ("LPS") in exchange for an
aggregate of 270,000 shares of the Company's Common Stock and the assumption of
all liabilities from LPS' shareholders in a private transaction exempt from
registration under the Act pursuant to Section 4(2) thereof. LPS, doing business
as "Lantana Peat and Soil", is a distributor of high quality custom soil mixes
to wholesale nurseries throughout South Florida.
The majority shareholder of LPS, owning approximately 85.2% of LPS, was
Darren Apel. Minority shareholders in LPS, each owning approximately 7.4% of the
issued and outstanding stock, were Barbara Hausman, wife of Robert Hausman who
is Chairman and President of the Company, and Ronna Newman Rutstein, wife of C.
Lawrence Rutstein, who is a director of the Company.
The calculation of the consideration paid by the Company in the
acquisition of LPS was equal to approximately 32% of the then current annualized
revenues of LPS of approximately $3 million. Management of the Company made the
determination as to the consideration to be paid based upon their internal
analysis of LPS. In May 1998, LPS was sold to American Group, Inc. (see below)
On September 1, 1997, the Company acquired 100% of the assets of Apollo
Pipe & Valve ("Apollo") in exchange for an aggregate of $100,000 and 25,000
shares of the Company's common stock in a private transaction exempt from
registration under the Securities Act of 1933 pursuant to section 4(2) therof,
as amended. Apollo is a distributor of industrial pipe valves and fittings
throughout Florida.
Effective June 30, 1998, Apollo was sold back to its original owner in
exchange for an aggregate of $50,000, the cancellation of the balance of the
purchase note due to the owner of $50,000, and the cancellation of 18,750 shares
of the Company's common stock which represented the balance due on the original
transaction.
On November 12, 1997 the Company received its approval for quotation on
The Nasdaq SmallCap Market (TM). The Company also changed its trading symbol as
of that date, to "COVN" from "WFSY" to reflect the name change of the Company
from Workforce Systems Corp. to Coventry Industries Corp. that took place on
October 28, 1997.
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On April 14, 1998 the Company completed the sale of the assets of its
American Industrial Management, Inc. subsidiary to Global Industrial Services, a
staffing company engaged in providing support staffing for various industries.
The sale price was the assumption of the debts and liabilities of the company in
the amount of approximately $100,000.
On June 17, 1998, the Company signed a letter of intent to acquire
People First, LLC. a Cincinnati, Ohio based employee leasing company. People
First has projected annualized revenues of $105.0 million and projected earnings
of $1.5 million from leasing approximately 6,300 employees to health care
customers in 24 states. On September 30, 1998, the Company entered into an
exchange agreement with BSD Healthcare Industries, Inc. and its wholly owned
subsidiary ("BSD") and People First L.L.C. (PF). BSD operates a respiratory
therapy and respiratory therapy management business and PF is in the process of
becoming an employee leasing company.
On June 29, 1998, the Company completed the sale of all the issued and
outstanding common stock, or 1,000 shares (the "LPS Shares") of LPS to American
Group, Inc., a Nevada corporation ("American"). As consideration for the LPS
Shares, American transferred to the Company: (i) 75,000 shares of the Company's
Series F Preferred Stock held by American; and (ii) 1,200,000 shares of the
common stock of American. Pursuant to the terms of the agreement between the
Company and American which set forth the terms of the sale, the Company may at
its option invest up to $500,000 in American for the purpose of financing the
operations of LPS. The transaction was effective as of May 29, 1998.
See Item 7. Financial Statements for financial information relating to
the above transactions.
Manufacturing Division
The Manufacturing Division of the Company, as of June 30, 1998
comprises all of the Company's operations which consist of IFR and its IFR
Contract Services and MRO divisions, and Federal Supply. For the fiscal year
ended June 30, 1998, the Manufacturing Division accounted for approximately 94%
of the Company's revenues on a consolidated basis.
As a result of a combination of broad industry experience, top quality
component products, specialized design and custom fabrication capabilities, the
Manufacturing Division is able to market its products and services to a wide
range of industries.
Moreover, while the breadth of its product offering covers a wide range
of specific applications, individual products are often utilized separately or
jointly by customers within a single industrial plant. As the Manufacturing
Division continues to expand the scope of its operations, through both internal
means and by acquisition, the Company believes that it enhances its position as
a one-stop source for a variety of its customer's needs.
IFR provides machining, welding, specialty design and fabrication for
custom applications to clientele from various industries including wood, lumber
and paper, steel mills, stone and asphalt companies, utilities, excavation
contractors, reclamation operations, electronic and automobile manufacturers,
coal mining applications and bottling facilities.
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IFR is also an authorized distributor for a variety of component
products, including engineering and roller chain, conveyor pulleys and idlers,
gear and motor drives, bearings and industrial v-belts from manufacturers such
as Webster Chain, Allied-Locke-Moline, Precision Inc., Superior Idlers,
Eurodrvie and Dunlop. IFR's business and services are marketed through its five
sales representatives. IFR's primary distribution methods include common
carrier, company owned vehicles and recognized package services such as UPS and
Federal Express. A significant portion of IFR's business is generated from its
long standing relationships with clients within the 150 mile radius of
Knoxville, Tennessee including Coca-Cola Co., Pepsico, Kimberly-Clark Corp.,
American Limestone, Florida Steel Corp., Vulcan Materials Co., Dixie Cement,
Blue Diamond Coal, TRW-Koyo and Westinghouse. While IFR maintains standard
distribution agreements with its suppliers, the terms of which are customary to
its industry, IFR has no long term agreements with any supplier. While there can
be no assurances, in the event IFR should be unable to obtain component products
from one or more existing supplier, management of the Company does not foresee
any difficulty in locating one or more alternative suppliers at competitive
prices for the component products used by IFR. No single client accounted for
more than 5% of IFR's annual revenues for the fiscal year ended June 30, 1998.
Although IFR does not maintain long term contracts with its customers, and while
there can be no assurances, management of the Company does not anticipate the
loss of any one customer would have a material adverse effect on the business
and operations of the IFR.
MRO is an industrial supply house representing several lines of power
transmissions products, such as gear boxes, bearings and couplings, including
lines from Falk, Goodman Material Handling Components and Leeson Electric,
together with a variety of other chain, bearing and idler distributors handling
components which are commonly used in industrial manufacturing and operating
facilities. While MRO maintains standard distribution agreements with its
suppliers, the terms of which are customary to its industry, MRO has no long
term agreements with any supplier. While there can be no assurances, in the
event MRO should be unable to continue its distribution agreements with one or
more existing suppliers, management of the Company does not foresee any
difficulty in locating one or more alternative lines at competitive prices for
distribution by MRO.
MRO's products are marketed by its sales staff to both value-added
manufacturers as well as direct end users. MRO's primary distribution methods
include customer pick-up, common carrier, company-owned vehicles and recognized
package services such as UPS and Federal Express. For the fiscal year ended June
30, 1998, management completed the restructuring of this subsidiary, through the
full integration of its Cleveland, Tennessee based facility into the existing
IFR facilities in Knoxville, Tennessee. This has enabled the Company to reduce
overhead, improve operating efficiencies, and better promote cross selling
opportunities.
IFR Contract Services division of IFR provides highly skilled contract
labor to two of IFR's customers. These two clients represent 100% of its
revenues. The loss of one of these two clients could have a material adverse
effect on the business and operations of IFR Contract Services until replacement
clients could be secured, of which there can be no assurances.
Federal is a fabricator and distributor of custom-designed fire sprinkler
systems and components for use in both commercial and residential application.
Its present customer base is located in South Florida.
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Federal's principal products include pipe, valves, screwed and grooved
fittings, sprinkler head and hanger materials from manufacturers such as Bull
Moose Tube, Northwest Pipe, American Tube Victaulic, Ward Manufacturing,
Reliable Sprinkler Corp. and Globe Manufacturing. While Federal maintains
standard distribution agreements with its suppliers, the terms of which are
customary to its industry, Federal has no long term agreements with any
suppliers. While there can be no assurances, in the event Federal should be
unable to continue its distribution agreements with one or more existing
supplier, management of the Company does not foresee any difficulty in locating
one or more alternative lines at competitive prices for distribution by Federal.
Federal's fabrication services include stocklisting, welding, grooving,
threading and hanger fabrication. Federal's products and services are marketed
to contractors and installers by its sales staff. Federal's primary methods of
distribution include common carrier, company-owned vehicles and recognized
package services such as UPS and Federal Express. For the fiscal year ended June
30, 1998, Federal has no long term contracts with any of its customers.
Competition
While IFR competes with numerous fabricators in the East Tennessee
area, management of IFR believes it has limited direct competition as a result
of the comprehensive nature of its services. Within the 150 mile radius of its
client base, IFR is one of a select few fabricators which offers a full bevy of
services from concept and design to engineering and prototype to custom systems.
There can be no assurances, however, that IFR in fact will maintain a
competitive advantage or that if such competitive advantage exists, IFR will be
able to retain this advantage in the future. MRO competes with a wide variety of
industrial supply houses, the majority of which are larger, have a longer
history of operations and greater resources. There are no assurances MRO will be
able to effectively compete in its market. Federal competes with a variety of
suppliers and manufacturers of fire sprinkler systems, many of which have a
longer operating history and greater resources than Federal. There can be no
assurances that Federal will be able to effectively compete in its market.
Government Regulation and Environmental Compliance
The operations of the Manufacturing Division are not subject to any
state or government regulations at the present time, other than normal and
customary rules and regulations, including environmental regulations, to which
most companies are subject. There can be no assurances, however, that future
regulations at the state or federal level, if adopted, will not have a material
adverse effect on the operations of the Manufacturing Division.
Staffing Division
The Staffing Division was comprised of OIS and AIM. For the year ended
June 30, 1998, the Staffing Division accounted for approximately 6% of the
Company's revenues on a consolidated basis. On April 14, 1998 the Company
completed the sale of the assets of AIM to Global Industrial Services. During
fiscal 1998, OIS was restructured into the operations of IFR Contract Services
under the Manufacturing division to improve customer service and operating
efficiencies as the two customers of OIS are also clients of IFR for its
fabrication and repair services. For fiscal year 1999, the Company will no
longer maintain a separate staffing division.
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Consumer Products Division
The Consumer Products Division was comprised of NHP, PTP and LPS. For
the fiscal year ended June 30, 1998, the Consumer Products Division had no
revenue on a consolidated basis. LPS had $1,720,000 of revenue included in
discontinued operations.
As previously discussed, during fiscal 1998, the Company suspended
operations in its NHP and PTP subsidiaries.(see Item 1) On June 29, 1998,the
Company completed the sale of all the issued and outstanding common stock, or
1,000 shares (the "LPS Shares") of LPS to American Group, Inc., a Nevada
corporation ("American"). For Fiscal 1999, the Company will no longer maintain a
separate consumer products division.
Employees
As of June 30, 1998, the Company had approximately 74 employees, all of
whom were full time.
Item 2. Description of Property
The Company maintains its principal executive offices in Boca Raton,
Florida of approximately 1,000 square feet of commercial office space with an
unaffiliated third party on a month to month basis. The Company's OIS Division
leases facilities,in East Tennessee. OIS leases 500 square feet of office space
on a month to month basis for $350 per month from an unaffiliated third party.
Federal leases an aggregate of approximately 38,500 square feet of
office/warehouse space in Pompano Beach, Florida from unaffiliated third parties
under leases expiring on September 30, 2001 for an aggregate annual rental of
approximately $176,000. Federal subleases an aggregate of 12,000 square feet to
an unaffiliated third party under a sublease expiring on September 23, 1999
which provides aggregate rental payments to Federal of approximately $56,400.
Prior to its acquisition by the Company, IFR's principal offices were
located in a 13,500 square foot office/industrial building in Knoxville,
Tennessee which was leased by IFR from Mr. Gann, IFR's President and then sole
shareholder, on an annual basis at a monthly rental of $3,400. Following the
Company's acquisition of IFR, IFR continues to lease this space from Mr. Gann.
In June 1995 the Company, through a wholly-owned subsidiary Workforce Properties
Corp., acquired fee simple title to a 35,000 square foot office/industrial
building in Knoxville, Tennessee from an unrelated third party.
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This building was encumbered by an existing first mortgage in the
original principal amount of approximately $585,000, with interest at 7 3/4%
over the 110 month term which commenced in June 1993. The first mortgage
provided for an initial monthly payment of $4,800 with a monthly increase of
0.377% during the term of the mortgage and no pre-payment penalty. The mortgage
will be satisfied in full upon the timely payment of all 110 monthly payments.
The Company assumed the existing first mortgage on the building, with a
remaining principal balance of approximately $390,000 pursuant to the original
terms and conditions of the first mortgage.
In connection with the purchase of the building, the Company assumed
certain obligations to pay past due city and county real estate taxes due on the
property. Prior to such assumption, the Company negotiated an arrangement with
the City of Knoxville for the payment of the past due taxes, which approximated
$110,000 in the aggregate for the years 1990 through 1997, over a period of 36
months by making monthly installments of $2,000 with a balloon due at the end of
the term. The Company also assumed a similar arrangement the prior owner of the
property had negotiated with Knox County for the payment of past due taxes,
which approximated $44,000 for the years 1994 through 1997, over a period of 36
months by making monthly installments of $1,684.
The building, which is in good condition, is sufficient for the
Company's present needs and management of the Company believes it is adequately
covered by insurance. All of the leased locations are presently sufficient for
the required purposes and should the Company wish to relocate any office in the
future, management does not believe it would experience any difficulty in
locating and securing alternative office space at a reasonable rate.
The Company has executed a five year exclusive lease, which is
renewable at the option of the Company for an additional five year term, with an
unaffiliated third party which permits the Company to excavate whatever
quantities of the minerals which are the component of Mr. Food's Allo-Fresh as
it deems necessary for an annual base fee of $30,000 for the first 1,000 tons.
Such amount is payable in advance at the beginning of each year of the
term of the lease and no portion is refundable in the event at least 1,000 tons
are not excavated during the subject year. Thereafter, the Company pays a fee of
$30 per ton.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On August 26, 1994 the Company's Common Stock began trading on the OTC
Bulletin Board under the symbol WFSC. Prior to such date, there had been no
market for the Company's Common Stock; thereafter, there has been limited
trading. On April 4, 1997, simultaneous with the one for four stock split of the
Company's Common Stock, the Common Stock began trading under the symbol "WFSY."
On November 12, 1997 the Company's common stock began trading on the NASDAQ
SmallCap Market (TM) under the symbol "COVN."The following table sets forth the
average of the high and low bid prices of the Company's Common Stock as reported
on the OTC Bulletin Board for each quarter from June 30, 1996 through November
11, 1997. The quotations provided from November 12, 1997 through June 30, 1998
are as reported on The Nasdaq SmallCap Market(TM), All prices are adjusted to
give effect to the stock split. The following quotations through November 11,
1997, are over-the-market quotations and, accordingly, reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
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High Bid Low Bid
July 1, 1996 through September 30, 1996 $21.12 $19.84
October 1, 1996 through December 31, 1996 $16.56 $15.40
January 1, 1997 through March 31, 1997 $11.20 $10.44
April 1, 1997 through June 30, 1997 $ 4.81 $ 4.54
July 1, 1997 through September 30, 1997 $ 4.85 $ 4.54
October 1, 1997 through November 11, 1997 $ 5.00 $ 3.5625
November 12, 1997 through December 31, 1997 $ 7.4325 $ 4.00
January 1, 1998 through March 31, 1998 $ 5.5625 $ 3.3125
April 1, 1998 through June 30, 1998 $ 6.5625 $ 4.00
On August 31, 1998, the closing bid price for the Common Stock as
reported on the The Nasdaq SmallCap Market(TM) was $ 1.3125. As of August 31,
1998, the approximate number of record holders of the Company's Common Stock was
158. Management of the Company, however, believes there to be in excess of 1,000
beneficial holders of the Company's Common Stock.
Dividend Policy
The Company has not paid any cash dividends on its Common Stock since
its inception. The Company presently intends to retain future earnings, if any,
to finance the expansion of its business and does not anticipate that any cash
dividends will be paid in the foreseeable future. Future dividend policy will
depend on the Company's earnings, capital requirements, expansion plans,
financial condition and other relevant factors.
The Company, as of August 31, 1998 has issued and outstanding 30 shares
of Series A Preferred, 30,000 shares of Series C Preferred Stock, 115,000 shares
of Series E Cumulative Non-Participating Preferred Stock, and 1,250 shares of a
series of 5% convertible preferred The Series F Cumulative Non-Participating
Preferred Stock was retired on June 29, 1998. The Series A Preferred does not
pay any dividends; the Series C Preferred Stock does not pay any dividends
except at the discretion of the Board of Directors. The Board of Directors does
not intend to declare any dividends on the Series C Preferred Stock. The Series
E Cumulative Non-Participating Preferred Stock pays annual dividends of $77,000.
The Series F Cumulative Non-Paricipating Preferred Stock paid annual dividends
of $55,000 prior to its retirement on May 31, 1998. The 1,250 shares of a 5%
convertible preferred pays $50 per share per annum in either stock or cash at
the Company's option. See Item 12. Certain Relationships and Related
Transactions.
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Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of Private
Securities Litigation Reform Act 1995. Such statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward looking statements. The Company does not have a policy of updating
or revising forward-looking statements and thus it should not be assumed that
silence by management of the Company over time means that actual events are
bearing out as estimated in such forward looking statements.
Results of Operations
Year ended June 30, 1998 as compared to year ended June 30, 1997
During the year ended June 30, 1998 consolidated revenues increased $3,216,695
or approximately 69.1% from the year ended June 30, 1997. This increase is
attributable to (i) an increase in revenues generated by the Company's
Manufacturing Division, and (ii) a full year of revenues from Federal Supply,
Inc. and Federal Fabrication, Inc. (collectively, "Federal") which were acquired
by the Company during the last quarter of fiscal 1997.
Gross profit margins as a percentage of revenues for the year ended June 30,
1998 decreased approximately 7% from the comparable year in fiscal 1997. The
Company's gross profit percentage decreased from the prior year due to the
impact of Federal on the consolidated group. Historically, Federal has
experienced lower profit margins than the Companys other subsidiaries in the
comparable year. Such reduced gross profit margins have adversely effected the
overall profitability of the Company. Management of the Company anticipates the
gross profit margins reported by Federal as a result of the nature of its
business will be stable for the forseeable future.
Operating expenses increased approximately 100.6% for the year ended
June 30, 1998 from the year ended June 30, 1997 primarily as a result of
increased selling, general and administrative expenses ("SG&A") and marketing
and public relation services, (paid for with the Company's common stock). SG&A,
on a consolidated basis increased approximately 88.9% during the year ended June
30, 1998 from the year ended June 30, 1997 as a result of the addition of SG&A
expenses attributable to the inclusion of Federal (approximately $500,000) which
was not part of the consolidated group in the prior period, other ongoing growth
of the Company's operations and one time costs associated with the relocation of
the Company's principal executive offices from Knoxville, Tennessee to Boca
Raton, Florida. Other operating expenses were non-cash items including
depreciation and amortization and professional fees related to current and
future expansion of the Company's operations of approximately $4,567,000. SG&A
as a percentage of revenue increased to 38% for the year ended June 30, 1998
from 34% for the year ended June 30, 1997.
13
<PAGE>
The Company reported a net loss of $8,977,895 for the year ended June
30, 1998 as compared to a net loss of $2,894,751 for the year ended June 30,
1997. Approximately $6,327,000 of the net loss is attributable to non-cash
items, including depreciation and amortization of approximately $402,000,
approximately $654,000 of goodwill write down related to Federal Supply,
approximately $390,000 of costs associated with certain professional fees, and
approximately $3,852,000 of charges related to common stock issued in connection
with various acquisitions that have been expensed due to the disposition of the
acquired company or the acquired company can no longer justify the carrying
value of the capitalized costs. The remaining portion of the net loss is mainly
attributable to operating losses at Federal (approximately $200,000).
Manufacturing Division
The manufacuring division of the Company at June 30, 1998 comprises all
of the Company's operations which consist of IFR and its IFR Contract Services
and MRO divisions, and Federal Supply.
For the year ended June 30, 1998 the Manufacturing Division reported an
increase in revenues of approximately 104.3% from the year ended June 30, 1997.
This increase is attributable to (i) revenues from Federal for a full year, (ii)
continued increase in revenues from both Industrial Fabrication & Repair, Inc.
("IFR") and its subsidiary, Maintenance Requisition Order Corp. ("MRO"), (iii)
the internal realignment of one of the Company's subsidiaries, Outside
Industrial Services, Inc. ("OIS") from the Staffing Division to the
Manufacturing Divisions (see "Staffing Division" below). The Manufacturing
Division reported a loss from operations of approximately $662,000 for the year
ended June 30,1998 and $115,000 for the year ended June 30, 1997.
Staffing Division
For the year June 30, 1998 the Staffing Division reported a decrease in
revenues of approximately 48.3% from the year ended June 30, 1997. The Staffing
Division reported a loss from operations of approximately $101,000 for the year
ended June 30, 1998 which is attributable to a concentration of revenues
generated from lower margin accounts. The Staffing Division reported a loss from
operations of approximately $168,000 for the year ended June 30, 1997.
During the year ended June 30, 1998 the Company undertook an internal
realignment of one of its subsidiaries. OIS, a staffing company which provides
personnel with specialty skills, such as transportation operation and equipment
maintenance, was realigned to fall within the Manufacturing Division, leaving
American Industrial Management, Inc. ("AIM") as the sole component of the
Staffing Division. On April 14, 1998 the Company completed the sale of the
assets of AIM to Global Industrial Services. As a result of the specialized
nature of the services provided by OIS, coupled with the synergistic customer
base of IFR and OIS, management of the Company undertook such realignment to
both increase the operating efficiency of OIS as well as to provide better
service to its customers.
14
<PAGE>
Consumer Products Division
There were no revenues for the Consumer Products Division for year
ended June 30, 1998, versus $55,720 the year ended June 30, 1997. The Consumer
Products Division reported a loss from discontinued operations of approximately
$2,164,099 for the year ended June 30, 1998. The loss related to (i) LPS, which
the Company sold effective May, 1998, and (ii) the write down of obsolete
inventory in the Company's remaining inactive consumer products companies. The
Consumer Products Division reported a loss from operations of approximately
$271,000 for the year ended June 30, 1997.
Liquidity and Capital Resources
The Company's working capital at June 30, 1998 was $134,059 versus
$1,317,699 at June 30, 1997. The decrease in working capital is attributable
primarily to a decrease in inventory. The Company does not presently anticipate
any significant capital expenditures in order to pursue the Company's plan of
operations for fiscal 1999, consisting of its normal business operations.
On January 16, 1998 the Company completed a private placement of 1,250
shares of 5% Convertible Preferred Stock at a purchase price of $1,000 per
share, resulting in gross proceeds of $1,250,000. The Company has filed a proxy
statement for a special meeting of shareholders at which the conversion terms of
the additional 1,250 shares 5% Convertible Preferred Stock will be submitted for
approval by the Company's shareholders; however, as of the date hereof, the date
of the special meeting of shareholders has not been set. Readers are encouraged
to carefully review the preliminary proxy statement currently on file with the
Securities and Exchange Commission for a complete description of the private
placement and the conversion terms of the 5% Convertible Preferred Stock. The
funds received to date from the private placement and the additional funds to be
received upon the second closing, will be sufficient to provide for the
Company's working capital needs during the next 12 months based upon its current
plan of operations. In the event, however, the Company's shareholders do not
approve the conversion terms of the additional 1,250 shares of 5% Convertible
Preferred Stock, or the Company should expand its plan of operations for the
next 12 months, the Company will be required to raise additional working capital
to fund it plan of operations for the balance of fiscal 1999. As of the date
hereof, the Company has not identified any alternative sources of working
capital. Additionally, a substantial portion (approximately $2,170,000) of the
Company's property, plant and equipment and accounts receivable are unencumbered
and, accordingly, would provide additional sources of internal working capital
should the Company elect to enter into an asset based lending arrangement. The
Company also borrowed funds from its president. See footnote #20 to the
financial statements.
The Company has been and continues to be in the process of evaluating
its information technology infrastructure for the Year 2000 compliance. The
Company has modified certain systems to be Year 2000 compliant. The Company does
not expect that the cost to modify its information technology infrastructure to
Year 2000 compliance will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be compliant. The
Company does not currently have information concerning Year 2000 compliance
status of its suppliers and customers. In the event that any of the Company's
significant suppliers or customers does not successfully and timely achieve Year
2000 compliance, the Company's business or operations could be adversely
affected.
15
<PAGE>
Item 7. Financial Statements
The Company's financial statements are contained in pages F-1 through
F-22 as follows.
16
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Coventry Industries Corp.
We have audited the accompanying consolidated balance sheet of Coventry
Industries Corp. as of June 30, 1998 and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended June 30,
1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to report on these financial
statements based on our audit. We did not audit the financial statements of
Industrial Fabrication & Repair, Inc., and Workforce Properties Corp., wholly
owned subsidiaries, which statements reflect total assets of fifty-two percent
(52 %) as of June 30, 1998 and total revenues of forty-one percent (41%) for the
year then ended. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Industrial Fabrication & Repair. Inc. and Workforce Properties
Corp. , is based solely on the report of the other auditors.
We conducted our audit 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 from 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 audit provides 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 Coventry Industries Corp. as of
June 30, 1998, and the results of its operations and its cash flows for the
year ended June 30, 1998 in conformity with generally accepted
accounting principles.
Sweeney, Gates & Co.
Fort Lauderdale, Florida
September 28, 1998
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
of Coventry Industries Corp.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows for the year then ended June 30, 1997, of
Coventry Industries Corp. (formerly Workforce Systems Corp.) and subsidiaries.
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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of Coventry
Industries Corp. and subsidiaries at June 30, 1997, and their cash flows for the
year then ended, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Miami, Florida
October 7, 1997
F-2
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Balance Sheet
June 30, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 52,188
Accounts receivable, less $50,000 allowance for doubtful accounts 1,196,993
Inventory 1,071,140
Prepaid consulting fees 141,667
Other prepaid expenses 56,588
----------
Total Current assets 2,518,576
----------
PROPERTY, PLANT AND EQUIPMENT:
Land 156,502
Building and improvements 1,439,889
Machinery and equipment 1,570,972
Autos and trucks 166,712
Accumulated depreciation (571,408)
----------
Total property, plant and equipment 2,762,667
----------
OTHER ASSETS:
Goodwill, net 1,391,724
Prepaid consulting fees 354,232
Fabrication supplies 333,307
Deposits 14,614
----------
$7,375,120
==========
The accompanying Notes are an integral part of these Financial Statements.
F-3
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Balance Sheet
June 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturites of long-term debt $ 322,655
Factoring line of credit 335,902
Trade accounts payable 1,093,270
Accrued expenses 432,970
Preferred stock dividend payable 47,896
Note payable - former shareholder 151,824
-----------
Total Current Liabilities 2,384,517
-----------
LONG TERM DEBT, LESS CURRENT PORTION 395,325
-----------
STOCKHOLDERS' EQUITY:
Series A Preferred stock, $.001 par value, 30 shares
authorized, issued and outstanding -
Series C Preferred stock, $.001 par value, 30,000 shares
authorized, issued and outstanding 30
Series E Preferred stock, $.001 par value, 115,000 shares
authorized, issued and outstanding 115
5% Convertible preferred stock, $.001 par value, 2,500 shares
authorized, 1,14250 issued and outstanding 1
Common Stock, $.001 par value, 25,000,000 shares
authorized, 3,032,797 shares issued and outstanding 3,033
Additional paid in capital 21,398,987
Stock to be earned (1,416,667)
Prepaid media spots (500,000)
Deferred compensation (394,625)
Accumulated deficit (14,495,596)
-----------
Total Stockholders' Equity 4,595,278
-----------
$ 7,375,120
===========
The accompanying Notes are an integral part of these Financial Statements.
F-4
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Statements of Operations
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
Revenues $ 7,869,981 $ 4,653,286
Cost of revenues 6,532,924 3,518,500
----------- -----------
Gross profit 1,337,057 1,134,786
Operating expenses:
Selling, general and
administrative expenses 2,828,016 1,573,559
Marketing and public relations 3,710,714 464,596
Depreciation and amortization 402,268 282,398
Professional fees 454,560 308,996
Startup expenses -- 1,357,899
----------- -----------
Total operating expenses 7,395,558 3,987,448
----------- -----------
Loss from operations (6,058,501) (2,852,662)
Other expenses:
Loss on sale of subsidiaries 66,246 --
Interest 216,061 65,488
Impairment of goodwill 655,738 --
Acquisition expenses -- 110,000
----------- -----------
Total other expenses 936,045 175,488
----------- -----------
Loss before income taxes and
discontinued operations (6,994,546) (3,028,150)
Income tax benefit (180,750) (133,399)
----------- -----------
Loss before discontinued operations (6,813,796) (2,894,751
Discontinued operations (2,164,099) --
----------- -----------
Net loss (8,977,895) (2,894,751
Dividends paid (114,834) --
----------- -----------
Net loss available to common
shareholders $(9,092,729) $(2,894,751)
=========== ===========
Loss per share of common stock:
Loss from continuing operations $ (2.64) $ (3.58)
Loss from discontinued operations (0.82) --
----------- -----------
Net loss per common share $ (3.46) $ (3.58)
=========== ===========
Weighted average shares outstanding 2,629,148 808,421
=========== ===========
The accompanying Notes are an integral part of these Financial Statements.
F-5
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Preferred stock
Series A Series C Series D
Shares Amount Shares Amount Shares Amount
------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Balance July 1, 1997 30 $ 30,000 $ 30 $
Preferred stock issued in connection
with the acquisition of LPS
Common stock issued in connection
with the acquisition of LPS
Preferred stock cancelled in connection
with disposition of LPS
Common stock issued in connection
with disposition of LPS
Common Stock issued in connection with
compensation to consultants and employees
Preferred stock issued in connection with
conversion of notes payable
Preferred stock issued
Repurchase of common stock
Preferred stock dividends
Net loss for the year ended June 30, 1998
--------- ------ -------- ------ ------ ---------
Balance June 30, 1998 30 $ 0 30,000 $ 30 0 $ 0
========= ====== ======== ====== ====== =========
Additional Stock Prepaid Deferred
Common stock Paid-In to be Media Compensation
Shares Amount Capital Earned Spots Expense
-------------------- ---------- ------- ------ ------------
Balance July 1, 1997 1,952,934 $1,953 $12,567,700 $(1,416,667) $(500,000) $
Preferred stock issued in connection
with the acquisition of LPS
Common stock issued in connection
with the acquisition of LPS 360,900 361 1,831,743
Preferred stock cancelled in connection
with disposition of LPS
Common stock issued in connection
with disposition of LPS 245,000 245 1,274,755
Common Stock issued in connection with
compensation to consultants and employees 778,854 779 3,690,638 (394,625)
Preferred stock issued in connection with
conversion of notes payable 1,149,904
Preferred stock issued 1,074,999
Repurchase of common stock (304,891) (305) (75,918)
Preferred stock dividends (114,834)
Net loss for the year ended June 30, 1998
--------- ------ ----------- ----------- --------- ---------
Balance June 30, 1998 3,032,797 $3,033 $21,398,987 $(1,416,667) $(500,000) $(394,625)
========= ====== =========== =========== ========= =========
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Series E Series F Convertible
Shares Amount Shares Amount Shares Amount
-------------------- --------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Balance July 1, 1997 $ $ $
Preferred stock issued in connection
with the acquisition of LPS 75,000 75
Common stock issued in connection
with the acquisition of LPS
Preferred stock cancelled in connection
with disposition of LPS (75,000) (75)
Common stock issued in connection
with disposition of LPS
Common Stock issued in connection with
compensation to consultants and employees
Preferred stock issued in connection with
conversion of notes payable 115,000 115
Preferred stock issued 1,250 1
Repurchase of common stock
Preferred stock dividends
Net loss for the year ended June 30, 1998
------- -------- ------ -------- ------ -----
Balance June 30, 1998 115,000 $ 115 0 $ 0 1,250 $ 1
======= ======== ====== ======== ====== =====
Total
Accumulated Stockholders'
Deficit Equity
------------ -----------
Balance July 1, 1997 $(5,517,701) $5,135,315
Preferred stock issued in connection
with the acquisition of LPS 75
Common stock issued in connection
with the acquisition of LPS 1,832,104
Preferred stock cancelled in connection
with disposition of LPS (75)
Common stock issued in connection
with disposition of LPS 1,275,000
Common Stock issued in connection with
compensation to consultants and employees 3,296,792
Preferred stock issued in connection with
conversion of notes payable 1,150,019
Preferred stock issued 1,075,000
Repurchase of common stock (76,223)
Preferred stock dividends (114,834)
Net loss for the year ended June 30, 1998 (8,977,895) (8,977,895)
------------ ----------
Balance June 30, 1998 $(14,495,596) $4,595,278
============ ==========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Coventry Industries Corp.
Consolidated Statements of Stockholders' Equity
- - ---------------------------------------------------------------------------------------------------------------
Year ended June 30,1997
- - - ----------------------------------------------------------------------------------------------------------------
Series A Series B Series C Series D Common
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1996 30 $ - - $ - 30,000 $ 30 1,000,000 $ 1,000 622,710 $ 623
-
Sale of common stock
(Note 13) - - - - - - - - 8,334 8
Common stock issued in
connection with acquisition
of FSI (Note 4) - - - - - - - - 145,000 145
Common stock issued in
connection with
compensation to certain
consultants and employees
(Note 13) - - - - - - - - 71,772 72
Options granted in
connection with consulting
services (Note 13) - - - - - - - - - -
Options exercised (Note 13) - - - - - - - - 505,118 505
Conversion of convertible
preferred stock (Note 12) - - - - - - (1,000,000) (1,000) 600,000 600
Net Loss - - - - - - - - - -
- - - ----------------------------------------------------------------------------------------------------------------
Balance June 30, 1997 30 $ - - $ - 30,000 $ 30 - $ - 1,952,934 $1,953
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,1997 (Continued)
- - - ----------------------------------------------------------------------------------------------
Stock Prepaid Total
Paid-in to be Media Accumulated Stockholders'
Capital Earned Spots Deficit Equity
- - - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1996 $ 8,570,809 - ($500,000) $ (2,622,950) $ 5,449,512
Sale of common stock
(Note 13) 99,992 - - 100,000
Common stock issued in
connection with acquisition
of FSI (Note 4) 422,668 - - 422,813
Common stock issued in
connection with
compensation to certain
consultants and employees
(Note 13) 780,581 - - 780,653
Options granted in
connection with consulting
services 2,180,455 $(1,416,667) - 763,788
(Note 13)
Options exercised (Note 13) 512,795 - - 513,300
Conversion of convertible
preferred stock (Note 12) 400 - - -
Net Loss - - (2,894,751) (2,894,751)
- - - ----------------------------------------------------------------------------------------------
Balance June 30, 1997 $12,567,700 $(1,416,667) ($500,000) (5,517,701) $ 5,135,315
================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-7
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(8,977,895) $(2,894,751)
Adjustments to reconcile net loss to
net cash (used) by operating activities
Depreciation 249,289 191,206
Amortization 152,979 91,192
Provision for doubtful accounts 50,000 246,013
Inventory valuation write-off 477,052 359,610
Goodwill write-off 653,738 -
Loss on disposal 483,746 -
Issuance of common stock and options granted
for services 3,401,630 871,521
Issuance of common stock for LPS transaction 1,576,854 -
Changes in assets and liabilities, net of businesses
acquired
(Increase) decrease in:
Trade account receivable (229,044) (112,076)
Inventory 6,736 (302,111)
Other current assets 556,661 165,461
Other assets 190,733 (28,330)
Increase (decrease) in:
Accounts payable 177,640 275,823
Accrued expenses and preferred stock dividend payable (54,086) 197,599
Income taxes payable - (73,329)
Deferred income tax liability (130,000) (60,541)
----------- -----------
Net Cash (Used) by Operating Activities (1,413,967) (1,072,713)
INVESTING ACTIVITIES:
Purchase of property and equipment (100,471) (249,634)
Investment in Apollo (18,000) -
Investment in LPS (462,500) -
----------- -----------
Net Cash Used by Investing Activities (580,971) (249,634)
FINANCING ACTIVITIES:
Net proceeds from factoring line of credit (62,956) 121,883
Proceeds from note payable - related party 9,093 10,064
Payments on note payable - stockholder - (118,131)
Payments on long term debt (212,488) (261,583)
Proceeds from long term debt 120,905 353,648
Dividends paid (66,938) -
Proceeds from sale of common stock and
exercise of stock options 1,924,189 613,300
----------- -----------
Net Cash Provided by Financing Activities 1,711,805 719,181
----------- -----------
Decrease in Cash and Cash Equivalents (283,133) (603,166)
Cash and Cash Equivalents, Beginning of Period 335,321 938,487
----------- -----------
Cash and Cash Equivalents, End of Period $ 52,188 $ 335,321
=========== ===========
</TABLE>
The accompanying Notes are an integral part of these Financial Statements.
F-8
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Coventry Industries Corp. and subsidiaries (the "Company"),
formerly known as Workforce Systems Corp., operates two lines of business,
manufacturing and staffing. The Company through its Tennessee subsidiary,
Industrial Fabrication & Repair, Inc. ("IFR"), provides specialized fabrication,
machining and design of maintenance and production equipment, and supplies
specialized labor services on a contract basis. The Company's customers are
primarily manufacturing companies. The Company through its Florida subsidiary,
Federal Supply, Inc. ("FSI"), fabricates fire protection products. The Company's
customers are primarily contractors.
Both subsidiaries perform ongoing credit evaluations of their customers'
financial condition and extend credit to their customers based upon their
evaluations. If creditworthiness is questionable, merchandise is shipped COD.
The allowance for doubtful accounts is based upon the expected collection of
accounts receivable.
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make 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 and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories - Inventories are stated at lower of cost or market. Provision for
potentially obsolete or slow-moving inventory is made based on management's
analysis of inventory levels and future sales forecasts. Cost of production
equipment held for resale is determined on a specific identification basis. When
equipment is purchased in lots, the individual parts are expensed at a
predetermined percentage of the sales price until the cost of the lot is
recovered. Costs to repair, inspect and/or modify the parts held for resale are
charged to the specific part when incurred.
Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation is computed over the estimated useful lives of depreciable
assets using the straight-line method as follows:
Building and improvements 20 years
Machinery and equipment 5 to 15 years
Autos and trucks 5 years
F-9
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill - The excess of the cost over the fair value of net assets acquired
(goodwill) is amortized on a straight-line basis over 20 years. The Company
evaluates the carrying value of this asset whenever events or circumstances
indicate that the carrying amount of the long-lived assets may not be
recoverable.
Income Tax - Income tax assets and liabilities are computed annually for
temporary differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future,
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period, plus or minus the change during the period in deferred tax assets and
liabilities.
Revenue Recognition - Revenue from product sales is recognized at the time of
shipment. Staffing revenue is recognized when the related payroll costs are
incurred.
Loss per Share - The Company has adopted Financial Accounting Standards No. 128,
"Earnings per Share" ("FAS 128"), for its fiscal year ended June 30, 1998. FAS
128 requires presentation of basic and diluted earnings or loss per share. The
Company has potentially dilutive shares, however, because the Company has a
loss, the potentially dilutive shares are deemed anti-dilutive and only the
basic loss per share is presented. Loss per share is computed by dividing net
income by the weighted average number of shares outstanding during the period.
Restatement of the prior period for this pronouncement had no effect on the loss
per share amount.
Stock-Based Compensation - The Company accounts for stock-based awards using the
intrinsic value method, in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, no
compensation cost has been recognized for its incentive based stock options. The
Company provides additional pro forma disclosures as required under Statement of
Financial Accounting Standard, No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). Expense attributed to non-qualified stock options is
expensed when granted.
Statements of Cash Flows - For purposes of the statements of cash flows, the
Company considers all highly liquid investments with initial maturities of three
months or less to be cash equivalents.
Financial Instruments - The carrying amount of cash, accounts receivable, notes
payable, accounts payable and accrued expenses approximates fair value at June
30, 1998.
Reclassifications - Certain 1997 amounts have been reclassified to conform to
the 1998 presentation.
F-10
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
New Accounting Standard Not Yet Adopted - Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("FAS 130"), establishes
standards for the reporting and display of comprehensive income, its components
and accumulated balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, FAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information ("FAS 131"), supersedes, Financial
Reporting for Segments of a Business Enterprise ("FAS 14"). FAS 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. FAS 131 defines operating
segments as components of a company about which separate financial information
is available, that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
These new standards are effective for financial statements for periods beginning
after December 15, 1997, and require comparative financial information for
earlier years to be restated. The Company will adopt the above standards for its
fiscal year ended June 30, 1999. Implementation is not expected to have a
material effect on the financial statements.
2. OPERATIONS
The Company experienced a loss of approximately $8,978,000 in the year ended
June 30, 1998 and has had difficulties meeting its obligations as they become
due. The Company's continued existence is dependent upon its ability to resolve
its liquidity problems, principally obtaining financing, raising equity capital
and generating profitable operations. Although a significant part of the 1998
loss was attributable to non-cash expenditures (generated by stock
transactions), the Company still sustained losses from operations.
Management's plans in regard to these matters are to pursue other sources of
capital and to acquire other operations. The Company has also borrowed funds
from its President. See Note 20.
F-11
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ACQUISITIONS, SALES AND DISCONTINUED OPERATIONS
(a) On May 29, 1997, the Company acquired the common stock of Federal Supply,
Inc. The purchase price consisted of 145,000 shares of the Company's common
stock, valued at approximately $423,000 (80% of current market value), as well
as approximately $56,000 in cash and the assumption of liabilities.
The transaction was recorded as follows:
Fair value of assets acquired $ 1,311,921
Excess cost over net assets acquired 971,036
Cash paid and common stock issued in
connection with acquisition (479,000)
-----------
Liabilities assumed $ 1,803,957
===========
The following unaudited pro forma summary presents the consolidated results of
operations of the Company for the year ended June 30, 1997, as if the
acquisition had occurred on July 1, 1996:
Revenue $ 7,903,669
Net loss (3,370,633)
Net loss per share (3.70)
The unaudited proforma assumes the amortization of excess cost over fair value
of net assets acquired over 20 years ($48,552 per year).
(b) On September 22, 1997, the Company acquired the common stock of LPS
Acquisition Corp. ("LPS") for 270,000 shares of the Company's common stock,
valued at $1,298,700 (current market value). The LPS shareholders were related
parties to the Company.
On August 11, 1997, the LPS shareholders had purchased the net assets from
Kedec, Inc. (debtor in procession) through the bankruptcy court for $190,000 and
the assumption of $750,000 in debt, the $940,000 shown in the below schedule.
The transaction also included the assumption of the new company's liabilities,
including the above mentioned $190,000. The $326,000 of additional liabilities
assumed were fees to related parties.
F-12
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, the Company issued an option (subsequently exercised) to purchase
90,900 shares of common stock at $1.75 per share, for a value of $278,154
(excess of market value over option price) to consultants as payment for fees.
These fees have been expensed.
The transaction was recorded at the predecessor's cost (LPS) as follows:
Fair value of assets acquired $ 455,000
Excess cost over net assets acquired by
LPS shareholders (purchased goodwill) 485,000
940,000
Fees to related parties 326,000
------------
Liabilities assumed $ 1,266,000
============
Market value of initial acquisition shares
to LPS shareholders $ 1,298,700
Fees 278,154
------------
Market value of stock issued $ 1,576,854
============
The following unaudited summary results of operations of LPS for the period
September 1, 1997 to May 31, 1998 are as follows:
Revenue $ 1,729,928
Net loss (791,658)
Included in the net loss is the amortization of excess cost over fair value
of net assets acquired over 20 years ($18,188 for fiscal year 1998).
In addition, in connection with the acquisition of LPS, on September 25, 1997,
the Company issued $750,000 of preferred shares to the prior owner of Kedec,
Inc., the predecessor company, for his assumption of notes payable to financial
institutions. The Company issued 75,000 shares of Series F cumulative
non-participating preferred stock with a stated capital of $10.00 per share. The
Series F preferred shareholder received approximately $ 28,400 in annual
dividends during fiscal year 1998. These shares were retired in connection with
the disposition of LPS in May 1998.
F-13
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(c) On June 29, 1998 (effective for accounting purposes on May 31, 1998), the
Company sold the stock of LPS to American Group, Inc. ("AGI") for 1,200,000
shares of AGI stock (23.8% of the outstanding shares), and the return and
cancellation of 75,000 shares of the Company's Series F preferred stock.
Included in the agreement the Company guaranteed a note payable for $125,000,
and committed, at the Company's option, to invest $500,000 in AGI. Subsequent to
year end, the Company completed lease negotiations on four leases for equipment
with monthly rentals totaling approximately $6,275. The Company intends to
transfer the leases to AGI. Since the Company has continuing involvement in AGI,
and AGI has no other significant operations, no gain has been recorded. Due to
losses during the period, the value of the equity is zero. The loss on
discontinued operations is composed of the following:
Excess liabilities over assets
assumed by AGI $ 530,413
Fees to related parties (326,000)
Write off stock issued in transaction (1,576,854)
---------------
Loss on disposal (1,372,441)
Current year loss (791,658)
---------------
Loss on discontinued operations $ (2,164,099)
===============
Because the business was sold during the current fiscal year, the operations are
shown on the consolidated financial statements as discontinued operations.
In summary, the net cash contribution for the above two transactions was zero.
(d) On September 1,1997, the Company acquired the common stock of Apollo Pipe
and Valve, Inc. ("Apollo"). The purchase price consisted of $18,000 cash, a
promise of 25,000 shares of the Company's common stock (which were not issued
during the year), and a note payable for $82,000.
Apollo was operated by the Company for three months, and due to operating
difficulties, operations ceased in January 1998. On July 27, 1998 subsequent to
year-end the assets of Apollo were sold back to the original seller for a note
receivable of $50,000. The Company also issued 6,250 shares of stock in lieu of
the original purchase transaction 25,000 shares.
Proforma results of operations, as if the purchase had occurred on July 1,1997,
would not have been materially different from historical results.
The Apollo transaction was accounted for by the purchase method, and
accordingly, the results of operations of the acquired business has been
included in the accompanying consolidated financial statements from the dates
the Company assumed operational control of the acquired entity. The sale of
Apollo has been included on the accompanying Consolidated Statement of
Operations as a loss on disposal of subsidiaries as if it had occurred on June
30, 1998.
F-14
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(e) On March 31, 1998, the Company sold the stock of American Industrial
Management, Inc. ("AIM") for the assumption of approximately $100,000 of
liabilities by the purchaser. AIM was a provider of industrial personnel for
light manufacturing and assembly line operations and had been acquired in
February 1996 for common stock of the Company.
Pro forma results of operations, as if the sale had occurred on July 1,1997,
would not have been materially different from historical results.
The sale of AIM has been included on the accompanying Consolidated Statement of
Operations as a loss on disposal of subsidiaries.
4. INVENTORY
Inventory as of June 30, 1998 consisted of the following:
Finished goods $ 549,724
Raw materials 521,416
------------
Total $ 1,071,140
============
Non-current inventory of $333,307 is listed as fabrication supplies and other
assets on the accompanying consolidated balance sheet. Included in cost of sales
for the year ended June 30, 1998, is a write off of approximately $477,052 for
obsolete inventory related to the inventory held in inactive subsidiaries.
5. PREPAID CONSULTING EXPENSES
In connection with a five year consulting agreement with an investment banking
firm, the Company capitalized $531,316 in consulting expenses in fiscal 1997.
The current portion at June 30, 1998, and 1997 was $141,667. The balance of
prepaid consulting fees, $354,232, are included as a non-current asset at June
30,1998.
F-15
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. GOODWILL
Goodwill as of June 30, 1998 consisted of the following:
Goodwill $1,655,629
Less: Accumulated amortization 263,905
----------
$1,391,724
==========
Amortization expense was $163,689 and $91,192, for the years ended June 30,
1998, and 1997, respectively.
At June 30, 1998, the Company reviewed a subidiary's goodwill for impairment and
provided for a charge of $653,738.
7. Long-Term Debt
Long-term debt as of June 30, 1998 consisted of the following:
<TABLE>
<S> <C>
First mortgage payable to individuals, interest at
7.75%, principal and interest of $6,300 due monthly
through July 2003, secured by land and building $ 275,910
Notespayable to a bank and credit corporations, interest ranging from
7.75% to 10.94%, principal and interest payments of $7,119 due
monthly through May 2001, secured by
automobiles and equipment 45,963
Demand note payable to a director and his wife,
interest at 7.4%, unsecured 125,000
Capital leases payable, interest ranging from 9% to 20.1%, principal
and interest payments of $10,565 due monthly through October 2002,
secured by production, telephone
and computer equipment 271,107
-----------
717,980
Less current portion 322,655
-----------
$ 395,325
===========
</TABLE>
F-16
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maturities of long-term debt are as follows:
Year ending June 30,
1999 $ 322,655
2000 161,783
2001 115,983
2002 109,241
2003 8,318
------------
$ 717,980
============
The following property, plant and equipment are included under capital leases:
Machinery and equipment $ 487,024
Less accumulated depreciation 56,267
------------
$ 430,757
============
Factoring Line of Credit
A subsidiary of the Company maintains a factoring agreement, based upon eligible
accounts receivable, providing for up to $750,000 in a line of credit. Factoring
fees are 2.77% of eligible receivables. Interest is at prime plus 3%. The
advances are collateralized by all assets of the subsidiary. At June 30, 1998,
approximately $414,098 was still available for borrowing. The Company paid $
121,294 interest and charges during the year on the line.
Operating Leases
The Company leases office and warehouse space and office equipment under
operating leases that expire at various times through fiscal year 2002. Rental
expense under these operating leases for the years ended June 30, 1998 and 1997,
was approximately $ 263,852 and $ 114,000, respectively. In addition, the
Company leases land used in mineral excavation under an operating lease that
expires in June 2001 with a five-year renewal option. Rental expense was $30,000
and $30,000 for the years ended June 30, 1998, and 1997, respectively.
Approximate minimum future lease payments under these operating leases at June
30, 1998, are as follows:
Years ended June 30:
1999 $ 263,458
2000 266,209
2001 261,169
2002 37,938
F-17
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. PREFERRED STOCK
The Company is authorized to issue 2,000,000 shares of preferred stock, par
value $.001 per share, issuable in such series and bearing such voting,
dividend, conversion, liquidation and rights and preferences as the Board of
Directors may determine.
(a) Five Percent Convertible Preferred Stock
On January 16, 1998, the Company sold 1,750 shares of 5% convertible preferred
stock (no series), par value $.001, to ProFutures Special Equities Fund, L.P.
("ProFutures"), an unaffiliated party, in a private transaction at $1,000 per
share. The Company received $1,250,000 and issued 1,250 shares of the preferred
stock. In connection with this transaction, the Company incurred $175,000 of
expenses. See below as to the additional 500 shares.
The Company agreed to register the shares of common stock underlying the
preferred shares. When the registration becomes effective, ProFutures has agreed
to purchase an additional 750 shares of preferred stock at $1,000 per share. If
the registration statement is not effective within 121 days from the closing
date, the Company is subject to a penalty of 2% of the purchase price per month
($25,000) until the effective date of the registration.
The ability of ProFutures to convert the shares of preferred stock was limited
to a conversion of 605,043 shares of common stock at June 30, 1998, being a
maximum of 19.95% of the Company's currently issued and outstanding common
stock, until such time as the Company's shareholders have approved the issuance
of the registerable securities. Proceeds of $500,000 of the purchase price and a
certificate for 500 shares of preferred stock were deposited in an escrow
account pending such approval. On March 31, 1998, the Company and ProFutures
agreed to extend the time allowed for registration to June 30, 1998, and in
return ProFutures was granted 250,000 warrants to purchase the Company's common
stock at $4.50 per share and all penalties due were waived.
As of June 30, 1998, the Company had not completed the registration and the
$500,000 was returned to ProFutures and the 500 shares of preferred stock were
returned to the Company. Penalties commenced on July 1, 1998. The Company plans
to register the common stock and complete the transaction; however, there is no
assurance that the issuance will gain shareholder approval. At June 30, 1998,
dividends totaling $28,646 are due on the 5% convertible preferred stock.
F-18
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(b) Series A
The designations, rights and preferences of the Series A Preferred Stock provide
that the shares (i) have full voting rights, share for share, with the then
outstanding common stock of the Company as well as any other series of preferred
stock then outstanding, (ii) are not convertible into any other class of equity
of the Company, (iii) are redeemable at any time at the Company's option at par
value of $.001 per share, (iv) payment of dividends is at the sole discretion of
the Company's Board of Directors, (v) are not transferable without the consent
of the Company's Board of Directors and (vi) in the event of a liquidation or
cessation of operations, carry a liquidation preference equal to par value,
without interest, and are junior in interest to the Series B $5.00 Cumulative
Convertible Preferred Stock of the Company then outstanding. For the fiscal year
1998 and 1997 no dividends were declared by the Company's Board of Directors.
(c) Series C
The designations, rights and preferences of the Series C Preferred Stock provide
that the shares (i) have no voting rights, (ii) are not convertible into any
other class of equity of the Company, (iii) are redeemable at any time at the
Company's option at an amount equal to the prior year's annual dividend as
previously set by action of the Company's Board of Directors, (iv) pay dividends
at the sole discretion of the Company's Board of Directors, (v) are not
transferable without the consent of the Company's Board of Directors and (vi) in
the event of a liquidation or cessation of operations of the Company, carry a
liquidation preference equal to par value, without interest, and are junior in
interest to the Series B $5.00 Cumulative Convertible Preferred Stock of the
Company then outstanding. For the fiscal year 1998 and 1997 no dividends were
declared by the Company's Board of Directors.
(d) Series E
On October 7, 1997, the Company converted a note payable to stockholder to
115,000 shares of Series E cumulative non-participating preferred stock. The
designations, rights and preferences of the Series E Preferred Stock provides
that (i) holders shall receive annual dividends equal to $77,000, (ii) are
entitled to full voting rights, share for share with any then outstanding common
stock as well as with any other class or series of the Company having general
voting power with the common stock concerning any matter being voted upon by the
Company's stockholders, (iii) and are redeemable solely at the Company's option
at a redemption price to be negotiated by the parties at the time of the
redemption. At June 30, 1998 approximately $19,250 was due in dividends to the
Series E shareholder.
F-19
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. COMMON STOCK
The Company resolved, for all issued and outstanding shares of common stock held
by stockholders of record on April 3, 1997, shall be automatically combined at a
rate of four to one. Any fractional shares as a result of this split were
rounded up to the next whole share. The Company is currently authorized to issue
25,000,000 shares of common stock, par value $.001 per share. The components of
stockholders' equity, all shares and per share amounts have been retroactively
adjusted to reflect the reverse stock split.
During the year ended June 30, 1997, the Company issued 71,772 shares of common
stock in connection with the compensation of certain consultants and employees.
The total expense recorded in connection with these transactions amounted to
approximately $781,000, based upon the market value at the date of issuance.
During April 1997, the Company entered into a five year agreement for consulting
services. In connection therewith, the Company granted 500,000 stock options,
exercisable at $1.00 per share. One third of the options were treated as a
retainer for the services to be rendered over the term of the agreement and the
remaining two thirds were considered to be transactional options, which serve as
compensation due upon the consummation of acquisitions during the term of the
agreement. The retainer options are to be earned equally over the term of the
agreement. The transactional options are earned based on the acquisitions
concluded during the term of the agreement. If the agreement is terminated prior
to the termination date, or if no acquisitions occur, any unearned options will
be returned to the Company.
The stock options were valued at approximately $2,125,000, the market value at
the date of grant. In connection with this transaction, the Company recorded the
retainer options as prepaid consulting fees totaling approximately $708,000 of
which approximately $141,000 and $35,000 was expensed during the years ended
June 30, 1998 and 1997, respectively. The remaining $1,417,000 ascribed to the
transaction options were recorded as stock to be earned. The remaining balance
is reflected in equity and will be amortized in the future.
During April 1997, the 500,000 options were exercised and the Company received
$500,000.
In addition, during April 1997, the Company entered into a one-year agreement
for consulting services. In connection with this agreement, the Company granted
25,000 stock options exercisable at $2.50 per share. The stock options were
valued at approximately $55,000, the market value at the date of grant. In
connection with this transaction, the Company recorded consulting fees totaling
approximately $55,000. During April 1997, 5,118 options were exercised. At June
30, 1998, unexercised options totaled 19,882.
During October 1997, the Company repurchased 304,891 shares of common stock from
the former majority shareholder for $76,223.
F-20
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During fiscal year 1998, the Company issued 605,900 shares of common stock
valued at market totaling $2,851,854 in connection with an acquisition and to
consultants in connection with the acquisitions of certain companies.
During July 1997, the Company entered into a six year consulting agreement to
provide certain marketing services. As compensation for the services, the
Company granted a one-year option to purchase 262,000 shares of common stock at
$1.00 per share. The stock options were valued at $966,780, the excess of market
over the excercise price at the date of grant.
During the year ended June 30, 1998, the Company issued options for 483,009
shares of common stock at prices ranging from $1.00 to $2.00 per share, in
payment for marketing and consulting services. These options were valued at
market and totaled $1,389,204. See Note 10.
10. STOCK OPTION PLAN
On October 17, 1997, the Company adopted the 1997 Stock Option Plan ("the
Plan"). Officers, directors, employees, and consultants of the Company and its
subsidiaries may be granted incentive stock options ("ISOs") and non-statutory
options ("NSOs"), both with reload provisions. Consultants may only be granted
NSOs. The Plan calls for up to 1,000,000 options to purchase 1,000,000 shares of
common stock. The Plan terminates on October 16, 2007, unless extended by the
Company. The option price per share shall be determined by the Board or the
Stock Option Committee at the time any option is granted and shall not be less
than (i) in the case of ISOs, the fair market value, (ii) in the case of an NSO,
not less than the par value thereof, as determined by the Board or Stock Option
Committee.
A summary of the employee incentive stock option activity under the 1997 Plan is
as follows:
<TABLE>
<CAPTION>
Stock Options Range Weighted Average
------------- ----- ----------------
<S> <C> <C> <C> <C>
Balance at July 1, 1997 - - -
Granted 207,500 $4.00 to $5.00 $ 4.50
Exercised - - -
Cancelled - - -
----------- ---------
Balance at June 30, 1998 207,500 $4.00 to $5.00 $ 4.50
=========== =========
</TABLE>
F-21
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the non-statutory stock option activity under the 1997 Plan is as
follows:
<TABLE>
<CAPTION>
Stock Options Range Weighted Average
------------- ----- ----------------
<S> <C> <C> <C> <C>
Balance at July 1, 1997 - - -
Granted 874,600 $0.00 to $2.00 $ 1.12
Exercised 772,100 $0.00 to $2.00 1.25
Cancelled - - -
----------- ----------
Balance at June 30, 1998 102,500 $0.00 to $2.00 $ .15
=========== ==========
</TABLE>
In accordance with APB 25 and related interpretations, no compensation expense
has been recognized for employee ISOs. With regard to NSOs, compensation
expense, representing the difference between the option price and the fair
market value on the date of grant, had been recognized. Possible compensation
costs for the Company's ISOs have been determined based upon the fair value at
the grant date consistent with the Black-Scholes methodology prescribed under
FAS 123.
The fair value of the ISO options under FAS 123 was estimated at the date of
grant with a Black-Scholes option pricing model using an estimated dividend
yield of 0%, an estimated volatility of 65%, a risk-free interest rate of 6%,
and an expected life of 10 years.
Had the Company utilized FAS 123 to expense its ISOs, the pro forma net loss for
the year ended June 30, 1998 would have been approximately $9,395,495, and the
net loss per common share would have been $3.59.
11. PREPAID MEDIA SPOTS
The Company has the right to utilize network and radio advertising, valued at
$500,000, through December 2000. No advertising took place during the years
ended June 30, 1998 and 1997. The Company purchased the advertising by issuing
common stock. Accordingly, the $500,000 has been recorded as an offset to
equity.
12. OTHER RELATED PARTY TRANSACTIONS
From time to time, the Company borrowed funds from Yucatan Holding Company
("Yucatan"), the Company's former principal stockholder, for working capital
purposes. As of June 30, 1998, the Company owed Yucatan $151,824 on a demand
note bearing interest at 10%.
During the year ended June 30, 1998, the Company leased a facility from a
stockholder, at $3,400 per month. The lease expired on June 30, 1998 and is
presently on a month-to-month basis. Rent expense aggregated $40,800 for the
years ended June 30, 1998 and 1997.
F-22
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. INCOME TAXES
The Company files tax returns on a separate company basis.
At June 30, 1998, the Company had a Federal net operating loss carry forward of
approximately $11,300,000 that expires from 2011 through 2015. For financial
reporting purposes, a valuation allowance of $11,300,000 has been recognized to
offset the net deferred tax assets related to these carry forwards. Realization
of the benefits related to pre-acquisition losses may be limited in any one year
due to change of ownership rules under the Internal Revenue Code.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
Deferred Tax Liabilities: June 30, June 30,
1998 1997
-------- --------
Tax greater than book
depreciation/tax basis $ 90,000 $ 130,000
Less: valuation allowance (90,000) -
------------- -----------
$ - $ 130,000
============= ===========
Deferred Tax Assets:
Net operating loss carryforwards $ 11,300,000 $ 2,400,000
Less: valuation allowance (11,300,000) (2,400,000)
------------ -----------
$ - $ -
============ ===========
The reconciliation between the provision for income taxes and the amount which
results from applying the federal statutory tax rate of 34% to loss before
income taxes is as follows:
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
------------- -------------
<S> <C> <C>
Income tax credit at statutory Federal rate $ (3,842,000) $ (1,030,000)
============ ===========
Limit on recognition of deferred tax asset
due to valuation allowance (3,842,000) (1,030,000)
Adjustment for prior year's estimate (59,030) (72,399)
Change in deferred tax liability (130,000) (61,000)
Change in deferred tax asset - -
Current year payable - -
Other taxes 8,280 -
------------ -----------
$ (180,750) $ (133,399)
============ ===========
</TABLE>
F-23
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, June 30,
1998 1997
------------ -----------
Federal statutory tax rate 34.0% 34.0%
Increase of valuation allowance and other (36.0%) (38.4%)
------- -------
Effective tax rate (2.0%) (4.4%)
------ ------
14. BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Manufac- Consumer
turing Staffing Products Corporate Total
-------------- -------- --------- --------- -------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
1998 $ 6,879,235 $ 990,746 $ - $ - $ 7,869,981
1997 $ 3,564,133 $ 1,033,433 $ 55,420 $ - $ 4,653,286
Operating income (loss)
1998 $ (306,223) $ (38,003) $ - $ (4,747,495) $(5,091,721)
1997 $ (114,814) $ 168,034 $ (245,228) $ (966,687) $(1,494,763)
Identifiable assets
1998 $ 6,733,280 $ 4,852 $ - $ 636,988 $ 7,375,120
1997 $ 8,587,030 $ 87,874 $ 956,998 $ 37,270 $ 9,669,172
Depreciation and amortization
1998 $ 370,435 $ 226 $ - $ 31,607 $ 402,268
1997 $ 277,322 $ 2,255 $ 1,274 $ 1,547 $ 282,398
Capital expenditures
1998 $ 85,961 $ - $ - $14,510 $ 100,471
1997 $235,867 $ 2,627 $ 2,915 $ 8,225 $ 249,634
</TABLE>
During fiscal year 1998, business in the consumer product segment is included in
discontinued operations. Furthermore, during the fiscal year 1998, the Company
sold a subsidiary in the staffing segment and combined another subsidiary in the
staffing segment with its manufacturing segment.
F-24
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Cash paid (received) for:
Year Year
Ended Ended
June 30, 1998 June 30, 1997
-------------- -------------
Interest $ 242,067 $ 68,797
Income taxes $ - $ -
Supplemental Disclosures of Non-Cash Investing and Financing Activities
In September 1998, the Company acquired all the common stock of LPS Acquisition
Corp. ("LPS"). The Company purchased all the stock of LPS for 270,000 shares of
the Company's voting common stock totaling $1,298,700. The Company issued an
option to purchase 90,900 shares of common stock at $1.75 per share, or a value
of $278,154 (excess of market value over option price) to consultants as payment
for acquisition fees. Such non cash transactions as they relate the LPS are
included in discontinued operations.
During the year ended June 30, 1998, the Company issued 262,000 shares of common
stock in connection with certain marketing services valued at 966,780 which
amount was written off to improvement of good will in the current period, issued
245,000 shares of common stock in connection with the disposition of LPS, and
issued 483,000 shares of common stock in payment of marketing and consulting
services. The total value of the stock issued was $2,434,850. In addition, a
note payable of $1,150,019 was converted to 115,000 shares of preferred stock in
a transaction not affecting cash.
During the year ended June 30, 1997, the Company issued 110,000 shares of common
stock and 35,000 shares to consultants as payment for acquisition costs valued
at approximately $423,000 in connection with the purchase of FSI; issued 71,772
shares of common stock valued at approximately $781,000 and 525,000 stock
options valued at approximately $2,180,000 in connection with employment and
consulting agreements and startup expenses in transactions not affecting cash
flows.
16. OTHER EXPENSES
Acquisition expenses totaling $110,000 have been charged to expense for the year
ended June 30, 1997 and represent the value of 9,167 shares of common stock paid
to certain consultant as compensation for services pertaining to identifying and
closing potential acquisition targets. As no such acquisitions were closed, the
amount was expensed in full.
F-25
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Start-up expenses totaling $1,357,899 have been charged to expense for the year
ended June 30, 1997. $994,689 of the expenses relate to pre-operating expenses
incurred in the development of Mr. Food's AlloFresh under the Company's consumer
product division, PTP. The remaining $363,210 was incurred during the start-up
of one of the Company's subsidiaries and development of a product line.
17. CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank accounts, which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts, and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
18. COMMITMENTS AND CONTINGENCIES
Effective July 1, 1997 and as amended on November 1, 1997, the Company entered
into a Management Contract ("Contract) with its chairman and president for a
three-year period.. As part of the Contract incentive stock options were
granted. See Note 10. Further the contract granted anti-dilutive rights
providing that the chairman and president may maintain his percentage of
ownership, as of the date of the Contract, should any additional stock be issued
during the year ended June 30, 1998. Subsequent to year-end the chairman and
president exercised his anti-dilutive rights.
F-26
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Effective May 1, 1998, the Company entered into an Employment Agreement
("Agreement") with the president of a subsidiary located in Knoxville, TN, and a
director of the Company ("the Employee") for a three-year term. A signing bonus
of 100,000 stock options (NSOs) was granted. The NSO's were granted as an option
price of $.10 per share. Accordingly, $216,775 of compensation expense and
$394,625 of deferred compensation expense were recorded. See Note 11. As part of
the Agreement, certain anti-dilutive rights were granted in a percentage equal
to the ownership percentage of the Employee as of June 8, 1998. No exercise of
the anti-dilutive rights has occurred. Further, the Company agreed that in the
event of bankruptcy, reorganization, change of control, de-listing in NASDAQ, or
the expiration of the Agreement without renewal, that the Company will purchase
and redeem 125,925 shares of common stock of the Company for $750,000, or the
fair market value of the stock, whichever is greater. Alternatively, the
Employee may elect to transfer 125,925 shares of his Company stock in return for
the previously outstanding stock of Industrial Fabrication & Repair, Inc., a
wholly-owned subsidiary of the Company. See Note 1. Additionally, the Employee
was granted an option to acquire real property and improvements located in
Knoxville, TN in exchange for the Employee's assumption of all liabilities
related to the real property and improvements and $200,000 payable in either
cash, a to be negotiated note, or an equivalent number of Coventry shares at 90%
of bid price for the five day average prior to closing.
19. FOURTH QUARTER ADJUSTMENTS
Year-end adjustments made in the fourth quarter of 1998 had the effect of
increasing net loss for the quarter by approximately $6,300,000. The adjustments
related principally to the issuance of common stock in various transactions,
adjusting the carrying amounts of certain assets for impairment, and inventory
valuations associated with prior quarters of the year ended June 30, 1998.
20. SUBSEQUENT EVENTS
During September 1998, the Company entered into an exchange agreement ("Exchange
Agreement") with BSD Healthcare Industries, Inc. and its wholly owned
subsidiaries (collectively known as "BSD") and People First, L.L.C. ("PF"). BSD
operates a respiratory therapy and respiratory therapy management business and
PF is in the process of becoming an employee leasing company. According to the
Exchange Agreement, the Company will issue 80.1% of the issued and outstanding
common stock of the Company for 100% of BSD and its subsidiaries and 100% of the
membership interests in PF. The Company, BSD and PF are in the process of due
diligence, and there is no assurance that the transaction will take place. The
Company and/or BDS and PF may terminate the agreement during the 60-day due
diligence period.
Subsequent to year-end, the chairman and president of the Company loaned the
Company an aggregate of $120,000 through two one year notes. The notes bear
interest at 10 %. The monies have been used as working capital.
F-27
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
On August 4, 1997 Lyle H. Cooper C.P.A. was dismissed as the Company's
principal accountant. Lyle H. Cooper C.P.A. had served as the Company's
principal accountant since July 6, 1994. During the period Lyle H. Cooper C.P.A.
was engaged as the Company's principal accountant there were no disagreements
with Lyle H. Cooper C.P.A. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. No accountant's
report on the financial statements of the Company issued by Lyle H. Cooper
C.P.A. contained an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope or accounting principles. The Company
requested that Lyle H. Cooper C.P.A. furnish it with a letter addressed to the
Securities and Exchange Commission stating whether or not he agreed with the
statements made by the Company in response to Item 4 of the Report on Form 8-K
filed by the Company with the Securities and Exchange Commission on August 6,
1997 and, if not, stating the respects in which he did not agree. The Company
filed a copy of such letter from Lyle H. Cooper, C.P.A. confirming his agreement
to the Company's statements as an exhibit to the Form 8-K Report filed with the
Securities and Exchange Commission on August 6, 1997. See Exhibit 16.3
incorporated by reference hereto.
On August 4, 1997 the Company engaged BDO Seidman, LLP as its
independent accountant for the fiscal year ended June 30, 1997. The decision to
change accountants was approved by the Company's Board of Directors. The Company
consulted with BDO Seidman, LLP within the last two years concerning the
application of purchase accounting in the acquisitions of OIS, NHP and IFR. The
oral advice of BDO Seidman, LLP was considered by the Company in reaching its
decision as to the application of purchase accounting in such acquisitions.
On June 1, 1998 BDO Seidman, LLP advised the Company of its decision
not to accept a renewal of its engagement as the Company's principal accountant.
BDO Seidman, LLP had served as the Company's principal accountant since August
4, 1997. During the period BDO Seidman, LLP was engaged as the Company's
principal accountant there were no disagreements with BDO Seidman, LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure and there were no disagreement with BDO Seidman LLP.
During the interim period subsequent to the issuance of the June 30, 1997
financial statements through June 1, 1998 there were no disagreements. No
accountant's report on the financial statements of the Company issued by BDO
Seidman, LLP contained an adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting principles.
The Company requested that BDO Seidman, LLP furnish it with a letter addressed
to the Securities and Exchange Commission stating whether or not they agreed
with the statements made by the Company herein and, if not, stating the respects
in which they did not agree.
On June 11, 1998, the Board of Directors approved the engagement of
Sweeney Gates & Co. as its auditors for the year ended June 30, 1998. There had
been no prior consultations with these accountants.
17
<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 the names, ages and positions held with
respect to each Director and Executive Officer of the Company.
Name Age Position
- - ---- --- --------
Robert Hausman 42 Chairman of the
Board, President
Mark Weisz 39 Director
Lester Gann 53 Director and Secretary
C. Lawrence Rutstein 52 Director
All officers of the Company will hold office until the next annual
meeting of the Company. There are no arrangements or understanding between any
such officer of the Company and any other person or persons pursuant to which
such officer was or is to be selected as an officer of the Company.
The following sets forth biographical information as to the business
experience of each current Director and Executive Officer of the Company.
Robert Hausman. Mr. Hausman joined the Company's Board of Directors and
was elected President on June 1, 1997 following the acquisition of Federal. See
Item 1. Business - Overview. Mr. Hausman, who was elected Chairman of the Board
in September 1997, also serves on the Board of Directors of each of the
Company's subsidiaries and is a member of the Audit Committee. Mr. Hausman
devotes substantially all of his time and attention to the business of the
Company. From October 1994 to October 1997, Mr. Hausman was President and Chief
Executive Officer of Federal and since May 1995, Mr. Hausman has also been 25%
shareholder of South Eastern Sound & Communications, Inc., a Boca Raton based
sales, service and installation company of sound and communications systems. In
addition, since May 1996 Mr. Hausman has owned a one-third interest in All-Star
Sports Camp, Boca Raton, Florida. From February 1982 until July 1994, Mr.
Hausman was a 50% owner and Executive Vice President of Bedford Weaving Mills, a
Bedford, Virginia based speciality textile mill. Bedford Weaving Mills was
acquired by Mr.Hausman and his partner in February 1982 from Belding Hemingway,
Inc.(NYSE:BHY). Mr. Hausman received a B.S. in Management and Marketing in 1977
from Philadelphia College of Textiles and an MBA in Marketing and Management in
1978 from Babson College.
Mark Weisz. Mr. Weisz joined the Company's Board of Directors in
September 1997 and serves on its Audit Committee. Since May 1997 Mr. Weisz has
served as Regional Director of Tax for Northern Telecom, Ltd. (NYSE: NT). Prior
to assuming that position, from January 1993 until April 1997 Mr. Weisz served
as Tax Manager for Coopers & Lybrand, LLP in Miami, Florida. Earlier he served
as Senior Tax Associate (January 1990 to December 1992) and Tax Associate (June
1987 to December 1989) for Coopers & Lybrand, LLP in Princeton, New Jersey. From
1986 to 1987 he served in a tax internship with Arthur Young & Company in Metro
Park, NY. Mr. Weisz holds a B.S. in Accounting from Rutgers University.
18
<PAGE>
C. Lawrence Rutstein. Mr. Rutstein joined the Company's Board of
Directors in September 1997 and serves on its Audit Committee. Since May 1997
Mr. Rutstein has served as Chairman, CEO and President of Regenesis Holdings,
Inc.(OTC BB:RGNS) which has been in the food services and medical weight loss
business. Since 1995 he has also served as President of CapQuest Partners, Inc.,
a company which has made several investments in emerging software companies. A
Harvard Law School graduate, Mr. Rutstein has practiced corporate, banking and
securities law in Philadelphia, Pennsylvania. Mr. Rutstein previously served as
Chief Counsel to the Pennsylvania Department of Banking from 1971 to 1972, and
served as Resident Counsel to a major Philadelphia bank. From 1989 to 1991 he
served as Chairman of the Board of Cedar Group, Inc., a Nasdaq listed importer
and distributor of fasteners. From 1992 until 1994 he was a General Partner of
the Memphis Chicks AA baseball club and during 1995 he was Chairman of the
Rittenhouse Group, Inc., a private consulting company. Mr. Rutstein currently
serves on the Board of Directors of Packquistion Corp. and Future Graph, Inc.,
privately-held companies.
Lester Gann. Mr. Gann joined the Company's Board of Directors in
September 1997. Mr. Gann is President and a director of Industrial Fabrication &
Repair, Inc. ("IFR"), a subsidiary of the Company. Mr. Gann founded IFR in 1979
and has served as its President and a director continuously since the date of
formation. Mr. Gann has 34 years experience in tool and machinery design and
power transmission equipment and has received extensive training from various
manufacturers and distributors of the foregoing equipment. Mr. Gann is
responsible for all day to day operations of IFR, MRO, and IFR Contract
Services, which are divisions under IFR.
Key Employees
While not an executive officer of the Company, the following officer
and employee of the Company's subsidiaries makes significant contributions to
the business of the Company.
Greg Hoehn. Mr. Hoehn, 37, has been President of Federal since October
1, 1997 and was Operations Manager from January 1996 until October 1, 1997. He
is responsible for day to day operations, including oversight of administrative,
sales, warehouse, stocklisting and fabrication activities. From August 1994
until joining Federal, Mr. Hoehn was employed by Summers Fire Springs as
Production Manger and from June 1993 until August 1994 he was Senior Technical
Writer for Professional Management and Advisory Corp. In this position Mr. Hoehn
managed a staff of technical writers producing proposals for contractors bidding
on state and federal contracts where his responsibilities included supervising
the cost estimating for each contract and providing budget estimates and
escalation costs. Mr. Hoehn was Product Manager/Quality Control from February
1992 until June 1993 at SciCor where he was directly responsible for assigned
products from bidding to final testing and quality inspections. Mr. Hoehn
attended both the Community College of the Air Force and the University of
Maryland.
There is no family relationship between any of the officers, key
employees and directors. The Company currently maintains an Audit Committee
which is comprised of Messrs. Hausman, Weisz and Rutstein. The Company does not
presently maintain compensation or nominating committees of the Board of
Directors.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and on representations that no other
reports were required, there were no reports required under Section 16(a)
("Section 16(a)") of the Securities Exchange Act of 1934, which were not timely
filed during fiscal 1998, except that: reports on form 4 were not timely filed
by (i) Robert Hausman reporting options granted on November 1, 1997, (ii)
Robert Hausman reporting the granting of options on January 16, 1998, (iii)
Lester Gann reporting the granting of options on January 16, 1998 and exercised
on March 3, 1998 and (iv) Mark Weisz and C. Lawrence Rutstein reporting the
granting of options on January 16, 1998 and exercised on April 24, 1998.
19
<PAGE>
Item 10. Executive Compensation
The following table summarizes all compensation accrued by the Company
in each of the last three fiscal years for the Company's Chief Executive Officer
and each other executive officers serving as such whose annual compensation
exceeded $100,000. Directors of the Company do not receive compensation for
serving in such capacity.
<TABLE>
<CAPTION>
Name Long Term
And Annual Compensation Compensation
Principal ----------------------- ------------
Position Year Salary($) Bonus($) Other($) Options(#)
- - -------- ---- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Robert 1998 120,000 0 87,839(2) 7,500(3)
Hausman
President, 1997 0 0 0 0
CEO, and
Director(1) 1996 0 0 0 0
Lester 1998 100,000 118,125(4) 0 7,500(5)
Gann,
Secretary 1997 96,000 0 0 0
and
Director 1996 96,000 0 0 0
</TABLE>
(1) Mr. Hausman was elected the Company's President on June 1, 1997
and entered into a Management Agreement with the Company commencing July 1,
1997. See "Executive Compensation Employment and Management Agreements."
(2) On July 22, 1998, Mr. Hausman received 18,380 shares of Common
Stock in accordance with the terms of the Amendment to the Management Agreement
dated November 1, 1997. The fair market value on the date of issuance was
$3.9375 resulting in an aggregate value of $ 72,371. The balance was received as
a car allowance.
(3) On January 15, 1998, The Company granted to Mr. Hausman ISO options
to purchase 7,500 shares of Common Stock at an exercise price of $ 4.60 per
share pursuant to the Company's 1997 Stock Option Plan.
(4) On July 22, 1998, Mr. Gann received 30,000 shares of Common Stock
as a signing bonus in accordance with the terms of his new Employment Agreement
dated May 1, 1998. The fair market value on the date of issuance was $3.9375
resulting in an aggregate value of $118,125.
(5) On January 15, 1998, the Company granted to Mr. Gann NSO options to
purchase 7,500 shares of Common Stock at an exercise price of $ 2.00 per share
pursuant to the Company's 1997 Stock Option Plan.
20
<PAGE>
Employment and Management Agreements
On July 1, 1997 the Company entered into a Management Agreement with
Robert Hausman, President and Chairman of the Board of the Company. Pursuant to
the term of this three year agreement, Mr. Hausman is entitled to receive (i)
annual base compensation of $100,000, which increases in years two and three of
the agreement by the greater of the percentage increase of the Consumer Price
Index or 6% and (ii) options to purchase 100,000 shares of the Company's Common
Stock at an exercise price of $5.00 per share. During the term of the Management
Agreement should there be a change of control of the Company, as that term is
defined in the Management Agreement (see Exhibit 10.4 hereto), the Company at
its sole option may terminate the Management Agreement upon 30 days prior
written notice and thereafter will be obligated to pay Mr. Hausman the balance
of the compensation payable under the Management Agreement had same not been
terminated prior to its expiration, together with an additional sum equal to two
years annual base compensation. On November 1, 1997 the Company executed an
amendment to the Management Agreement increasing the annual base compensation to
$120,000 and granting additional options to purchase 100,000 shares of the
Company's stock at an exercise price of $4.00 per share. The Management
Agreement contains customary provisions providing for confidentiality.
In May 1995 IFR entered into a three year employment agreement with
Lester Gann providing for an annual base salary of $96,000 with the ability to
receive performance based bonuses at the discretion of the Board of Directors.
As of the date hereof, no such performance bonuses have been awarded. Mr. Gann
is also entitled to participate in all benefit programs of IFR as may be made
available to other salaried employees. Mr. Gann's employment agreement does not
provide for any severance payments. On May 1, 1998 IFR entered into a new three
year contract with Mr. Gann providing for an annual base salary of $100,000 with
the ability to receive performance based bonuses at the discretion of the Board
of Directors. Mr. Gann is also entitled to participate in all benefit programs
of IFR as may be made available to other salaried employees. Mr. Gann's
employment agreement contains customary provisions providing for confidentiality
as well as a twelve month non-compete following the termination of the
agreement.
On April 14, 1998 the employment contract with Mr. Robert Lovelace,
President of AIM Services, was terminated upon the consummation of the sale of
the company to Global Industrial Services. The Company has no further
obligations to Mr. Lovelace.
In October 1997, Federal entered into a two year employment agreement
with its President, Greg Hoehn, providing for an annual base salary of $50,000.
Mr. Hoehn is also entitled to participate in all benefit programs of Federal as
may be made available to other salaried employees. Mr. Hoehn's employment
agreement contains customary provisions providing for confidentiality, as well
as a twelve month non compete following the termination of the agreement. The
agreement also provides for severence equal to one year's base salary if Mr.
Hoehn is terminated without cause.
21
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of August 31, 1998 there are 3,078,594 shares of Common Stock issued
and outstanding and 30 shares of Series A Preferred Stock, 115,000 shares of
Series E Cumulative Non-Participating Preferred Stock and 1,250 shares of a
series of 5% convertible preferred issued and outstanding, all of which are
voting securities of the Company. The 1,250 shares of a series of 5% convertible
preferred which are issued and outstanding do not have voting rights. The
following table sets forth, as of the close of business on August 31, 1998 (a)
the name, address and number of shares of each person known by the Company to be
the beneficial owner of more than 5% of any class of each the Company's voting
securities and (b) the number of shares of each class of voting securities owned
by each director and all officers and directors as a group, together with their
respective percentage holdings of such shares:
Series A
Name and Amount of Percentage
Address of Beneficial of
Beneficial Owner Ownership of Stock Class
- - ------------------------------------------------------------------------------
Outside Industrial 30 100%
Services, Inc.(1)
2415 Sycamore Drive
Knoxville, TN 37921
All Officers and
Directors as a
Group (five persons) none n/a
Series E
Name and Amount of Percentage
Address of Beneficial of
Beneficial Owner Ownership of Stock Class
- - ------------------------------------------------------------------------------
Robert Hausman 115,000 100%
7777 Glades Road
Suite 211
Boca Raton, FL 33433
All Officers and
Directors as a
Group (five persons) 115,000 100%
Series 5% Preferred Stock
Name and Amount of Percentage
Address of Beneficial of
Beneficial Owner Ownership of Stock Class
- - ------------------------------------------------------------------------------
Pro-Futures Special 1,250 100%
Equities Fund, L.P.
1310 Highway 620 South
Suite 200
Austin, TX 78734
22
<PAGE>
All Officers and
Directors as a
Group (five persons) None N/A
Common Stock
Name and Amount of Percentage
Address of Beneficial of
Beneficial Owner Ownership of Stock Class
- - ------------------------------------------------------------------------------
Robert Hausman(2) 345,860 11.2%
7777 Glades Road
Suite 211
Boca Raton, FL 33434
Mark Weisz 100 (3)
7777 Glades Road
Suite 211
Boca Raton, FL 33434
C. Lawrence Rutstein(4) 19,980 (3)
7777 Glades Road
Suite 211
Boca Raton, FL 33434
Lester Gann 151,481 4.9%
2415 Sycamore Drive
Knoxville, TN 37921
All Officers and
Directors as a
Group (five persons)
(2)(3)(4) 517,421 16.8%
(1) Outside Industrial Services, Inc. is a subsidiary of the Company.
(2) Includes options to acquire 207,500 shares of the Company's Common
Stock, and 19,980 shares of Common Stock owned by Barbara Hausman, his spouse,
however, pursuant to Rule 16a-3 of the Securities Exchange Act of 1934, as
amended, Mr. Hausman disclaims beneficial ownership of the shares held by his
wife.
(3) Less than 1%.
(4) Includes 19,980 shares of Common Stock owned by Ronna Newman
Rutstein, his spouse, however, pursuant to Rule 16a-3 of the Securities Exchange
Act of 1934, as amended, Mr. Rutstein disclaims beneficial ownership of the
shares held by his wife.
Item 12. Certain Relationships and Related Transactions
During Fiscal 1997 from time to time the Company borrowed funds from
Yucatan (see Item 1, Description of Business)for working capital purposes. At
June 30, 1998 the amount due Yucatan by the Company was $151,824.
23
<PAGE>
In conjunction with the acquisition of Federal in May 1997 (see Item 1.
Description of Business), Federal delivered a promissory note to Robert Hausman
and Barbara Hausman in the principal amount of $1,079,024. Mr. Hausman was a 90%
shareholder in Federal prior to its acquisition by the Company. On October 7,
1997 Robert Hausman and Barbara Hausman converted the principal and any accrued
but unpaid interest thereon into 115,000 shares of the Company's Series E
Cumulative Non-Participating Preferred Stock (the "Series E"). The designations,
rights and preferences of the Series E provide (a) for annual dividends equal to
$77,000, (b) full voting rights, share for share, with any then outstanding
Common Stock as well as with any other class or series of stock of the Company
having general voting power with the Common Stock concerning any matter being
voted upon by the Company's stockholders, (c) is not convertible into any other
class of capital stock of the Company and (d) is redeemable at the option of the
Company at a redemption price to be negotiated by the parties at the time of
redemption. Dividends have been paid in cash through March 31, 1998. The balance
of the dividends due have been accrued. On July 1, 1998, Federal Supply borrowed
$50,000 from Robert and Barbara Hausman and delivered a one year promissory note
bearing interest at the rate of 10% per annum. On September 3, 1998, the Company
borrowed $70,000 from Robert and Barbara Hausman and delivered a one year
promissory note bearing interest at the rate of 10% per annum. These monies were
utilized for working capital purposes.
In conjunction with the September 1997 acquisition of LPS (see Item 1.
Description of Business), Barbara Hausman, the wife of Robert Hausman, the
Company's President and a director, and Ronna Newman Rutstein, the wife of C.
Lawrence Rutstein, a director of the Company, each received 19,980 shares of the
Company's Common Stock in exchange for their interests in LPS. As set forth
under Item 11. Security Ownership of Certain Beneficial Owners and Management,
pursuant to Rule 16a-3 of the Securities Exchange Act of 1934, as amended, each
of Messrs. Hausman and Rutstein disclaim beneficial ownership interest in the
shares held by their respective spouses. In August 1997 LPS purchased the assets
out of bankruptcy of Kedac, Inc., an unaffiliated third party, which such assets
consisted for substantially all of the existing operating assets, accounts
receivable, furniture and equipment and general intangibles, including the trade
name "Lantana Peat & Soil" for a total consideration of $190,000 in cash and the
assumption of $750,000 of notes with a financial institution.
As set forth in Item 1. Description of Business, in September 1997 the
Company purchased 100% of the issued and outstanding stock of LPS from its
shareholders, who included Mrs. Hausman and Mrs. Rutstein, in exchange for
270,000 shares of the Company's restricted Common Stock in a private transaction
exempt from registration under the Act in reliance on Section 4(2) thereof.
On May 1, 1998 the Company determined it would unwind its acquisition
of 51% of Regenesis Holdings, Inc. ("Regenesis")acquired from a shareholder of
Regenesis effective January 16, 1998 as the parties involved were unable to
fulfill their obligations under the acquisition agreement. There were no
extraordinary charges associated with the transaction and there was no adverse
effect on the Company as a result of this transaction. C. Lawrence Rutstein, a
director of the Company, served as President of Regenesis at the time of the
transaction. Robert Hausman, President and CEO of the Company served as a
director of Regenesis at the time of the transaction.
On June 29, 1998,the Company sold its investment in LPS to American
Group, Inc., a Nevada corporation ("American")for a 23.8% ownership in American.
24
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:
(a) Exhibits
Exhibit No. Description
- - ----------- -----------
2.6 Agreement dated as of May 29, 1997 by and between Workforce
Systems Corp. and Robert Hausman and John Murray as Sole
Shareholders of Federal Supply, Inc. and Robert Hausman as
Sole Shareholder of Federal Fabrication, Inc. is incorporated
by reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on June 4, 1997
2.7 Agreement dated as of May 29, 1998 by and between Coventry
Industries Corp. and American Group, Inc. is incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on June 30, 1998
3.1 Articles of Incorporation are hereby incorporated by reference
to the Registration Statement on Form SB-2 as declared
effective by the Securities and Exchange Commission on January
12, 1993
3.2 Articles of Amendment to the Articles of Incorporation setting
forth the designations, rights and preferences of the Series B
$5.00 Cumulative Convertible Preferred Stock are hereby
incorporated by reference to the Report on Form 8-K as filed
with the Securities and Exchange Commission on July 13, 1994
3.3 Articles of Amendment to the Articles of Incorporation
changing the corporation name are hereby incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on July 11, 1994
3.4 Articles of Amendment to the Articles of Incorporation setting
forth the designations, rights and preferences of the Series A
and Series C Preferred Stock are hereby incorporated by
reference to the Report on Form 10-QSB for the quarter ended
December 31, 1994 as filed with the Securities and Exchange
commission on February 15, 1995
3.5 Articles of Amendment to the Articles of Incorporation setting
forth the designations, rights and preferences of the Series D
Preferred Stock is hereby incorporated by reference to the
Report on Form 10-KSB for the fiscal year ended June 30, 1996
as filed with the Securities and Exchange Commission on
October 15, 1996
25
<PAGE>
3.6 Articles of Amendment to the Articles of Incorporation
increased the amount of authorized common stock and setting
forth the redemption provisions of the Series D Preferred
Stock is hereby incorporated by reference to the Registration
Statement on Form SB-2, File No. 333-11169, as filed with the
Securities and Exchange Commission on August 30, 1996, as
amended
3.7 Articles of Amendment to the Articles of Incorporation
decreasing the number of authorized common stock and effecting
a one for four stock split of the common stock is hereby
incorporated by reference to the Registration Statement on
Form SB-2, File No. 333-11169, as filed with the Securities
and Exchange Commission on August 30, 1996, as amended
3.8 By-Laws of the Company are hereby incorporated by reference to
the Registration Statement on Form SB-2 as declared effective
by the Securities and Exchange Commission on January 12, 1993.
3.9 Articles of Amendment to the Articles of Incorporation setting
forth the designations, rights and preferences of the Series E
Cumulative Non-Participating Preferred Stock are hereby
incorporated by reference to the Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1997.
3.10 Articles of Amendment to the Articles of Incorporation setting
forth the designations, rights and preferences of the Series F
Cumulative Non-Participating Preferred Stock are hereby
incorporated by reference to the Annual Report on Form 10-QSB
for the quarter ended September 30,1997 as filed with the
Securities and Exchange Commission on November 7, 1997
3.11 Articles of Amendment to the Articles of Incorporation
Changing the name of the corporation to Coventry Industries
Corp. are hereby incorporated by reference to the Report on
Form 10-QSB for the quarter ended September 30,1997 as filed
with the Securities and Exchange Commission on November 7,
1997
3.12 Articles of Amendment to the Articles of Incorporation setting
forth the designations, rights and preferences of the 5%
Series Convertible Preferred Stock are hereby incorporated by
reference to the report on Form 8-K filed with the Securities
and Exchange Commission on January 29, 1998.
4.1 Investment Banking Warrant Agreement between Coventry
Industries Corp. and Barron Chase Securities, Inc. is hereby
incorpoated by reference to the report on Form 10-QSB for the
quarter ended December 31, 1997 as filed with the Securities
and Exchange Commission on February 23, 1998.
26
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10.1 Licensing Agreement dated May 31, 1996 by and between Ginsburg
Enterprises Incorporated and Products That Produce, Inc. is
hereby incorporated by reference to the Report on Form 10-KSB
for the fiscal year ended June 30, 1996 as filed with the
Securities and Exchange Commission on October 15, 1996.
10.2 Employment Agreement between Industrial Fabrication & Repair,
Inc. and Lester E. Gann is hereby incorporated by reference to
the Registration Statement on Form SB-2, File No. 333-11169,
as filed with the Securities and Exchange Commission on August
30, 1996, as amended
10.3 Employment Agreement between American Industrial Management,
Inc. and Robert Lovelace is hereby incorporated by reference
to the Registration Statement on Form SB-2, File No.
333-11169, as filed with the Securities and Exchange
Commission on August 30, 1996, as Amended.
10.4 Management agreement between Workforce Systems Corp. and
Robert Hausman is hereby incorporated by reference to the
Annual Report on Form 10-KSB for the fiscal year ended June
30, 1997.
10.5 Amended and Restated Consulting Acquisition Management
Agreement between Workforce Systems Corp. and Manny J. Shulman
and Shulman & Associates, Inc. is hereby incorporated by
reference to the registration statement on Form S-8 as filed
with the Securities and Exchange Commission on September 24,
1997
10.6 Stock Purchase and Sale Agreement dated September 22 , 1997
between Workforce Systems Corp., a Florida corporation, and
Darren Apel, Barbara Hausman and Ronna Newman Rutstein, as
shareholders of LPS Acquisition Corp. is incorporated by
reference to the Report on Form 8-K as filed with the
Securities and Exchange Commission on September 22, 1997
10.7 Conversion Agreement dated October 7, 1997 between Workforce
Systems Corp., Federal Supply, Inc. and Robert Hausman and
Barbara Hausman is hereby incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997.
10.8 Conversion Agreement dated September 25, 1997 between
Workforce Systems Corp., LPS Acquisition Corp, and Eric and
Adrienne Deckinger is hereby incorporated by reference to the
Company's to the Report on Form 10-QSB for the quarter ended
September 30,1997 as filed with the Securities and Exchange
Commission on November 7, 1997
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<PAGE>
10.9 Financial Advisory Agreement between Coventry Industries Corp.
and Barron Chase Securities, Inc. is hereby incorpoated by
reference to the report on Form 10-QSB for the quarter ended
December 31, 1997 as filed with the Securities and Exchange
Commission on February 23, 1998.
10.10 Employment Agreement between Industrial Fabrication & Repair,
Inc. and Lester E. Gann is hereby attached as an exhibit to
the Report on Form 10-KSB for the fiscal year ended June 30,
1998.
10.11 Amendment to the Management Agreement between Coventry
Industries Corp. and Robert Hausman is hereby attached as an
exhibit to the Report on Form 10-KSB for the fiscal year ended
June 30, 1998.
16.3 Letter from Lyle H. Cooper, C.P.A. regarding change in
certifying accountants is hereby incorporated by reference to
the Report on Form 8-K as filed with the Securities and
Exchange Commission on August 6, 1997
16.4 Letter from BDO Seidman, LLP regarding change in certifying
accountants is hereby incorporated by reference to the Report
on Form 8-K as filed with the Securities and Exchange
Commission on August 6, 1997
16.5 Letter from BDO Seidman, LLP advising the Company of its
Decision not to renew their engagement with the company as its
principal auditors is hereby incorporated by reference to the
report on Form 8-K as filed with the Securities and Exchange
Commission on June 5, 1998.
16.6 Letter from BDO Seidman, LLP advising the Company of its
Agreement with statements made in response to Item 4 of Form
8-K for the event that occurred on June 1, 1998 is hereby
incorporated by reference to the report on Form 8-K/A as filed
with the Securities and Exchange Commission on June 17, 1998.
21 Subsidiaries of the Registrant is hereby incorporated by
reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1998
27 Financial Data Schedule
28
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(b) Reports on Form 8-K
During the three months ended June 30, 1998, the Company filed a
Report on Form 8-K with the Securities and Exchange Commission
1. On June 5, 1998, the Company filed a Report on Form 8-K
disclosing under Item 4 information relating to the non
renewal of the engagement by BDO Seidman LLP as the
Company's auditors.
2. On June 17, 1998, the Company filed a Report on Form 8-K/A
disclosing under Item 4 information relating to the change
in the Company's auditors.
3. On June 30, 1998, the Company filed a Report on Form 8-k
disclosing under Item 5 information relating to the sale of
LPS Acquisition Corp.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Coventry Industries Corp. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
COVENTRY INDUSTRIES CORP.
By: /s/ Robert Hausman
--------------------------------
Robert Hausman, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
/s/ Robert Hausman President, October 2, 1998
- - ---------------------------- Chairman
Robert Hausman
/s/ Mark Weisz Director October 2, 1998
- - ----------------------------
Mark Weisz
/s/ Lester Gann Director October 2, 1998
- - ----------------------------
Lester Gann
/s/ C. Lawrence Rutstein Director October 2, 1998
- - ----------------------------
C. Lawrence Rutstein
29
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of May, 1998 (the "Effective Date"), between Industrial
Fabrication & Repair, Inc., a Tennessee corporation ("Company"), whose principal
place of business is 2415 Sycamore Drive, Knoxville, Tennessee 37921, Coventry
Industries, Inc., a Florida corporation ("Coventry") (formerly known as
"Workforce Systems Corporation"), whose principal place of business is located
at 7777 Glades Road, Suite 211, Boca Raton, Florida 33434, and Lester E. Gann,
an individual ("Employee"), who resides in Knoxville, Knox County, Tennessee.
WHEREAS, the Company is a Tennessee corporation engaged in the
manufacture of specialized contracting for machinery, tools and design work
related thereto (the "Business"); and
WHEREAS, the Company desires to employ Employee and Employee desires to
be in the employ of the Company; and
WHEREAS, the Company has established a valuable reputation and goodwill
in its business, with expertise in all aspects of the Business; and
WHEREAS, Coventry is the parent corporation of the Company, having
previously acquired all of the issued and outstanding capital stock of the
Company from Employee, subject to certain understandings and agreements between
the parties, and the parties now desire to incorporate those provisions into
this Agreement; and
WHEREAS, Employee, by virtue of Employee's employment with the Company,
is familiar with and possessed with the manner, methods, trade secrets and other
confidential information pertaining to the Business.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein contained, the parties do hereby agree as follows:
1. Recitals. The above recitals are true, correct, and are herein incorporated
by reference.
2. Employment. The Company hereby employs Employee, and Employee hereby accepts
employment with the Company, upon the terms and conditions hereinafter set
forth.
3. Authority and Power During Employment Period.
3.1. Duties and Responsibilities. During the term of this Agreement, Employee
shall serve in a management position with the Company as President of the
Company and shall have such operating supervision over property, business and
affairs of the Company, as directed by the Board of Directors of the Company.
3.2 Time Devoted. Throughout the term of the Agreement, Employee shall devote
substantially all of Employee's business time and attention to the business and
affairs of the Company consistent with Employee's position with the Company,
except for reasonable vacations, or illness or incapacity.
4. Term. The Term of employment hereunder shall be for a term of three (3) years
commencing on the Effective Date as set forth above, unless sooner terminated
pursuant to Section 6 of this Agreement.
5. Compensation and Benefits.
5.1 Signing Bonus. In consideration for entering into this Agreement, the
Company hereby agrees to pay to Employee a bonus of 100,000 shares of Coventry
Industries pursuant to Coventry's Employee Stock Option Plan at a price equal to
ten cents ($.10) per share. The shares are to be paid as follows: 30,000 shares
upon signing of the contract, 35,000 shares upon the first anniversary, and
35,000 shares upon the second anniversary of the contract. The issuance of these
shares will be accelerated by any event that causes a change in control of the
parent company as defined in paragraph 10.1 of this agreement.
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5.2 Salary. Employee shall be paid a base salary in the amount of One Hundred
Thousand and No/100 Dollars ($100,000.00) (the "Base Salary"), payable on a
bi-weekly basis. In the second full year of employment the Employee's Base
Salary shall increase to One Hundred Twenty-Five Thousand and No/100 Dollars
($125,000.00) annually payable on a bi-weekly basis. During the third full year
of employment the Employee's Base Salary shall be One Hundred Twenty Five
Thousand and No/100 Dollars ($125,000.00) annually payable on a bi-weekly basis.
5.3 Performance-based Bonus. As additional compensation, Employee may be
entitled to receive a performance-based bonus (the "Bonus"), as determined by
the Board of Directors of the Company.
5.4 Employee Benefits. Employee shall be entitled to participate in all benefit
programs of the company currently existing or hereafter made available to other
salaried employees, including, but not limited to, pension and other retirement
plans, group life insurance, hospitalization, surgical and major medical
coverage, sick leave, salary continuation, vacation and holidays, long-term
disability, and other fringe benefits.
5.5 Business Expense Reimbursement. During the Term of employment, Employee
shall be entitled to receive proper reimbursement for all reasonable,
out-of-pocket expenses incurred by Employee (in accordance with the policies and
procedures established by the Company for its managers) in performing services
hereunder, provided Employee properly accounts therefor. Expenses in excess of $
1000 individually or $ 10,000 in the aggregate shall require approval of the
Board of Directors.
6. Consequences of Termination of Employment.
6.1 Death. In the event of the death of Employee during the Term of the
Agreement, Base Salary shall be paid to Employee's designated beneficiary, or,
in the absence of such designation, to the estate or legal representative of
Employee for a period of thirty (30) days from and after the date of death.
Other death benefits will be determined in accordance with the terms of the
Company's benefit programs and plans.
6.2 Disability. In the event of Employee's disability, Employee shall be
entitled to compensation in accordance with the Company's disability
compensation practice for its senior officers. "Disability," for the purposes of
this Agreement, shall be deemed to have occurred in the event (1) Employee is
unable by reason of sickness or accident, to perform Employee's duties under
this Agreement for an aggregate of 180 days in any twelve-month period or 90
consecutive days, or (2) Employee has a guardian of the person or estate
appointed by a court of competent jurisdiction. Termination due to disability
shall be deemed to have occurred upon the first day of the month following the
determination of disability as defined in the preceding sentence.
6.3 Termination by the Company for Cause.
(1) Nothing herein shall prevent the Company from terminating
Employee's employment for "Cause," as hereinafter defined. Employee shall
continue to receive salary only for the period ending with the date of such
termination as provided in this Section 6.3. Any rights and benefits Employee
may have with respect to any other compensation shall be determined in
accordance with the terms of such other compensation arrangements, benefit plans
or programs.
(2) "Cause" shall mean (1) committing or participating in an
injurious act of fraud, gross neglect, misrepresentation, embezzlement or
dishonesty against the Company; (2) committing or participating in any other
injurious act or omission wantonly, willfully, recklessly or in a manner which
was grossly negligent against the Company, monetarily or otherwise; (3) engaging
in a criminal enterprise involving moral turpitude; (4) an act or acts (I)
constituting a felony under the laws of the United States or any state thereof
or (ii) if applicable, loss of any state or federal license required for the
Employee to perform the Employee's material duties or responsibilities for the
Company; or (5) any assignment of this Agreement by the Employee in violation of
Section 12.6 of this Agreement.
(3) Notwithstanding anything else contained in this Agreement, this
Agreement will not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Employee a notice of termination stating
that the Employee committed one of the types of conduct set forth in this
Section 6.3 and specifying the particulars thereof.
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<PAGE>
7. Covenant Not to Compete and Non-Disclosure of Information.
7.1 Covenant Not to Compete. Except as set forth in this Agreement, the Employee
acknowledges and recognizes that the highly competitive nature of the Company's
business constitutes a substantial asset of the Company having been acquired
through considerable time, money and effort. Accordingly, in consideration of
the execution of this Agreement, the Employee agrees to the following:
(1) That during the Restricted Period (as hereinafter defined) and
within the Restricted Area (as hereinafter defined), the Employee will not,
individually or in conjunction with others, directly or indirectly, engage in
any Business Activities (as hereinafter defined), whether as an officer,
director, proprietor, employer, partner, independent contractor, shareholder
(other than as a holder, solely as an investment, of less than one percent (1%)
of the outstanding capital stock of a publicly traded corporation), consultant,
advisor, agent or otherwise.
(2) That during the Restricted Period and within the Restricted
Area, Employee will not, directly or indirectly, compete with the Company by
soliciting, inducing or influencing any of the Company's clients which have a
business relationship with the Company during the Restricted Period to
discontinue or reduce the extent of such relationship with the Company.
(3) The during the Restricted Period and within the Restricted Area,
Employee will not (1) directly or indirectly recruit, solicit or otherwise
influence any employee or agent of the Company to discontinue such employment or
agency relationship with the Company, or (2) employ or seek to employ, or cause
or permit any business which competes directly or indirectly with the Business
Activities of the Company (the "Competitive Business") to employ or seek to
employ for any Competitive Business any person who is then (or was at any time
within six (6) months prior to the date Employee or the Competitive Business
employs or seeks to employ such person) employed by the Company.
(4) That during the Restricted Period Employee will not interfere
with, or disrupt or attempt to disrupt any past, present or prospective
relationship, contractual or otherwise, between the Company and any customer,
employee or agent of the Company.
7.2 Non-Disclosure of Information. Employee acknowledges that the Company's
trade secrets, private or secret processes, methods and ideas, as they exist
from time to time, customer lists and information concerning the Company's
Business Activities, including products, services, training methods,
development, technical information, marketing activities and procedures, credit
and financial data concerning the Company (the "Proprietary Information") are
valuable, special and unique assets of the Company, access to and knowledge of
which are essential to the performance of Employee hereunder. In light of the
highly competitive nature of the industry in which the Company's Business
Activities are conducted, Employee agrees that all Proprietary Information,
heretofore or in the future obtained by Employee as a result of Employee's
association with the Company, shall be considered confidential.
In recognition of this fact, Employee agrees that Employee, during
the Restricted Period, will not use or disclose any of such Proprietary
Information for Employee's own purposes or for the benefit of any person or
other entity or organization (except the Company) under any circumstances unless
such Proprietary Information has been publicly disclosed generally or, unless
upon written advice of legal counsel reasonably satisfactory to the Company,
Employee is legally required to disclose such Proprietary Information. Documents
(as hereinafter defined) prepared by Employee or that come into Employee's
possession during Employee's association with the Company are and remain the
property of the Company, and when this Agreement terminates, such Documents
shall be returned to the Company at the Company's principal place of business,
as provided in the Notice provision of this Agreement.
7.3 Documents. "Documents" shall mean all original written, recorded, or graphic
matters whatsoever, any and all copies thereof, including, but not limited to:
papers; books; records; tangible things; correspondence; communications; telex
messages; memoranda; work-papers; reports; affidavits; statements; summaries;
analyses; evaluations; client records and information; agreements; agendas;
advertisements; instructions; charges; manuals; brochures; publications;
directories; industry lists; schedules; price lists; client lists; statistical
records; training manuals; computer printouts; books of account, records and
invoices reflecting business operations; and all things similar to any of the
foregoing however denominated. In all cases where originals are not available,
the term "Documents" shall also mean identical copies of original documents or
non-identical copies thereof.
3
<PAGE>
7.4 Restrictive Period. The "Restrictive Period" shall be deemed to be twelve
(12) months following termination of this Agreement.
7.5 Restricted Area. The Restricted Area shall be deemed to mean within the
United States of America.
7.6 Business Activities. "Business Activities" shall be deemed to include any
business activities concerning the manufacture of thawing trays and other new
products developed by Naturale Home Products, Inc., and any additional new
business activities which the Company or any of its affiliates may engage in
during the term of this Agreement which Coventry shall bring to the Company and
which have not historically been engaged in by the Company prior to such
introduction by Coventry. Business activities which the Company has heretofore
traditionally been engaged in shall not be considered as Business Activities for
purposes of this Agreement.
7.7 Covenants as Essential Elements of this Agreement. It is understood by and
between the parties hereto that the foregoing covenants contained in Sections
7.1 and 7.2 are essential elements of this Agreement, and that but for the
agreement by the Employee to comply with such covenants, the Company and
Coventry would not have agreed to enter into this Agreement. Such covenants by
the Employee shall be construed to be agreements independent of any other
provisions of this Agreement. The existence of any other claim or cause of
action, whether predicated on any other provision in this Agreement, or
otherwise, as a result of the relationship between the parties shall not
constitute a defense to the enforcement of such covenants against the Employee.
In the event Employee shall be in violation of the aforementioned
restrictive covenants, the time limitation thereof with respect to the
defaulting party shall be extended for a period of time equal to the period of
time during which breach or breaches should occur; and in the event Company
should require or seek relief from breach in any court or other tribunal, any
covenant shall be extended for a period of time equal to the pendency of such
proceeding, including appeals thereof.
7.8 Survival After Termination of Agreement. Notwithstanding anything to the
contrary contained in this Agreement, the covenants in Section 7.1 and 7.2 shall
survive the termination of this Agreement and the Employee's employment with the
Company.
7.9 Remedies.
(1) Employee acknowledges and agrees that the Company's remedy at
law for a breach or threatened breach of any of the provisions of Section 7.1 or
7.2 herein would be inadequate and that the breach shall be deemed as causing
irreparable harm to the Company. In recognition of this fact, in the event of a
breach by the Employee of any of the provisions of Section 7.1 or 7.2, the
Employee agrees that, in addition to any remedy at law available to the Company,
including, but not limited to monetary damages, all rights of Employee to
payment or otherwise under this Agreement and all amounts then or thereafter due
to Employee from the Company under this Agreement may be terminated and the
Company, without posting any bond, shall be entitled to obtain, and Employee
agrees not to oppose, the Company's request for equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available to the
Company.
(2) Employee acknowledges that the granting of a temporary
injunction, temporary restraining order or permanent injunction merely
prohibiting the use of Proprietary Information would not be an adequate remedy
upon breach or threatened breach of Section 7.1 or 7.2 and consequently agrees,
upon proof of any such breach, to the granting of injunctive relief prohibiting
any form of competition with the Company. Nothing herein contained shall be
construed as prohibiting the Company from pursuing any other remedies available
to it for such breach or threatened breach.
8. Withholding. Anything to the contrary notwithstanding, all payments required
to be made by the Company hereunder to Employee or Employee's estate or
beneficiaries shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Company may reasonably
determine it should withhold pursuant to any applicable law or regulation. In
lieu of withholding such amounts, the Company may accept other arrangements
pursuant to which it is satisfied that such tax and other payroll obligations
will be paid in a manner complying with applicable law or regulation.
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9. Coventry's Representations and Warranties. Coventry represents and warrants
that it is the owner of all of the issued and outstanding capital stock of the
Company and that it owns said stock free and clear of any liens, security
interests, warrants, options, claims or other encumbrances. Coventry, as the
parent corporation of the Company, guarantees the performance of all of the
Company's obligations to Employee under this Agreement.
10. Employee's Stock in Coventry. Coventry agrees in the event of its
bankruptcy, reorganization, change of control (as hereinafter defined)
DE-listing of it in the NASDAQ small capital market listings, or the expiration
of the term of this Agreement without extension thereof in writing, Coventry
will purchase and redeem Employee's 125,925 shares of stock in Coventry for (i)
Seven Hundred Fifty Thousand Dollars; or, (ii) the fair market value of said
stock, whichever is greater.
Employee's option and in his sole and absolute discretion, Employee,
alternatively, may elect to transfer his 125,925 shares of Coventry stock to
Coventry in exchange for Coventry returning to him all of the issued and
previously outstanding stock of Industrial Fabrication & Repair, Inc. (Company).
Upon Employee's written notification of his election to reacquire Industrial
Fabrication & Repair, Coventry shall convey such stock to Employee following the
occurrence of any of the conditions listed in the first paragraph of this
Section 10. Upon the occurrence of such conditions and Employee's election to
reacquire Company stock, his Employment Contract with Coventry shall terminate
immediately in its entirety. The parties agree that they shall in good faith
execute any and all stock certificates or other legal documents reasonably
required by counsel for either party which are deemed necessary to consummate
this transfer of shares.
In addition to the reacquisition of Company stock, in the event
Employee in his sole and absolute discretion shall elect to exchange his 125,925
shares of Coventry stock for all of the issued and previously outstanding stock
of Industrial Fabrication & Repair, the parties agree that in conjunction with
such decision, Employee shall also have the option to acquire the real property
and improvements located at 2415 Sycamore Drive, Knoxville, Knox County,
Tennessee 37931, in exchange for Employee's assumption of all liabilities
related to this real property and equipment and $200,000 payable in either cash,
a to be negotiated note,or an equivalent number in shares of Coventry stock at
90% of the bid price based on the five day average prior to closing to Coventry.
10.1 Change of Control Defined. For purposes of Article 10 of this Agreement,
"change of control" shall be defined as the issuance of more than fifty percent
(50%) of the voting control of Coventry. The parties agree and understand that
Coventry is presently pursuing acquisitions that will result in such control. As
additional consideration with respect to this issue, Employee agrees to
participate with the Company in such exchange to facilitate and preserve
Coventry's listing on the NASDAQ exchange.
10.2 Anti-dilution Rights. Employee is hereby granted anti-dilution rights in a
percentage equal to 225,925 shares divided by the number of common shares
outstanding on June 8, 1998 exclusive of common shares issuable under options,
warrants, or any convertible security. These rights are not applicable to a
change of control or sale of the parent company.
11. Miscellaneous.
11.1 Notices. Any notice required or permitted to be given under the terms of
this Agreement shall be sufficient if in writing and if sent postage prepaid by
registered or certified mail, return receipt requested; by overnight delivery;
by courier; or by confirmed telecopy, to the following designated
representatives of the parties (or such other person as subsequently designated
by the parties hereto in writing) at the following addresses:
To Coventry: Coventry Industries, Inc.
777 Glades Road
Suite 211
Boca Raton, Florida 33434
Attn: Robert Hausman
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To Company: Industrial Fabrication & Repair, Inc.
3007 West Industrial Parkway
P. O. Box 50336
Knoxville, Tennessee 37950-0336
Attn: Lester Gann
To Employee: Lester E. Gann
4016 Copper Ridge Road
Knoxville, Tennessee 37931
11.2 Waiver. Unless agreed in writing, the failure of either party, at any time,
to require performance by the other of any provisions hereunder shall not affect
its right thereafter to enforce the same, nor shall a waiver by either party of
any breach of any provision hereof be taken or held to be a waiver of any other
preceding or succeeding breach of any term or provision of this Agreement. No
extension of time for the performance of any obligation or act shall be deemed
to be an extension of time for the performance of any other obligation or act
hereunder.
11.3 Entire Agreement & Authority. This Agreement constitutes the entire
understanding between the parties hereto supersedes all prior and
contemporaneous agreements, understandings or communications among the parties
hereto concerning the Employment Agreement. Each party hereto represents that
the person executing this Agreement on behalf of said party, and that said
party, has full power and authority to execute, deliver and perform this
Agreement and such other instruments as required herein to consummate the
transactions contemplated hereby.
11.4 Modification. This agreement may be amended, modified, superseded or
canceled, and any of the terms, covenants, representations, warranties or
conditions hereof may be waived, only by a written instrument executed by all of
the parties hereto or, in the case of a waiver, by the party sought to be
charged.
11.5 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute but
one agreement.
11.6 Binding Effect/Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, and their heirs, legal
representatives, successors and assigns. This Agreement shall not be assignable
by the employee but shall be assignable by the Company in connection with the
sale, transfer or other disposition of its business or to any of the Company's
affiliates controlled by or under common control with the Company.
11.7 Governing Law and Forum. This Agreement shall become valid when executed
and accepted by all of the parties hereto. The parties agree that it shall be
deemed made and entered into in the State of Tennessee and shall be governed and
construed under and in accordance with the laws of the State of Tennessee.
Anything in this Agreement to the contrary notwithstanding, Employee shall
conduct Employee's business in a lawful manner and faithfully comply with
applicable laws or regulations of the state, city or other political subdivision
in which Employee is located. The parties further expressly agree that
jurisdiction and venue for any actions concerning the enforcement, construction
or interpretation of this Agreement shall be exclusively in the Chancery Court
for Knox County, Tennessee and the parties hereto consent to the personal
jurisdiction of said court.
11.8 Further Assurances. All parties hereto shall execute and deliver such other
instruments and do such other acts as may be necessary to carry out the intent
and purposes of this Agreement.
11.9 Headings. The headings of the sections are for convenience only and shall
not control or affect the meaning or construction or limit the scope or intent
of any of the provisions of this Agreement.
11.10 Survival. Any termination of this Agreement shall not, however, affect the
ongoing provisions of this Agreement which shall survive such termination in
accordance with their terms.
11.11 Severability. The invalidity or unenforceability, in whole or in part, of
any covenant, promise or undertaking, or any section, subsection, paragraph,
sentence, clause, phrase or word or of any provision of this Agreement shall not
affect the validity or enforceability of the remaining portions thereof, and
each term and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
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<PAGE>
11.12 Enforcement. Should it become necessary for any party to institute legal
action to enforce the terms and conditions of this Agreement, the successful
party will be awarded reasonable attorneys' fees at all trial and appellate
levels, including expenses and costs.
11.13 Independent Legal Counsel. The parties have either (i) been represented by
independent legal counsel in connection with the negotiation and execution of
this Employment Agreement, or (ii) each has had the opportunity to obtain
independent legal counsel, has been advised that it is in their best interests
to do so, and by execution of this Employment Agreement has waived such right.
11.14 Construction. This Agreement shall be construed within the fair meaning of
each of its terms and not against the party drafting the document.
THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ ALL OF THE TERMS OF THIS
AGREEMENT, UNDERSTAND THE AGREEMENT, AND AGREE TO ABIDE BY ITS TERMS
AND CONDITIONS, AND THAT THEY ENTER INTO IT OF THEIR OWN FREE WILL.
IN WITNESS WHEREOF, the parties have executed this Agreement as of date
set forth in the first paragraph of this Agreement.
THE COMPANY:
Industrial Fabrication & Repair, Inc.
By:
-------------------------------------
Title:
-------------------------------------
COVENTRY:
Coventry Industries, Inc.
By:
-------------------------------------
Title:
-------------------------------------
EMPLOYEE:
-------------------------------------
Lester E. Gann
7
<PAGE>
Exhibit 10.11
AMENDMENT TO MANAGEMENT AGREEMENT
THIS AMENDMENT TO MANAGEMENT AGREEMENT (this "Agreement") is made and
entered into as of the 1st day of November, 1997 (the "Effective Date") between
Coventry Industries Corp., formerly known as Workforce Systems Corp., a Florida
corporation whose principal place of business is 7777 Glades Road, Suite 211,
Boca Raton, Florida 33434 (the "Company"), and Robert Hausman, an individual
whose address is 3785 NW 65th Lane, Boca Raton, Florida 33496 (the "Manager").
RECITALS
WHEREAS, the Company and Hausman are parties to that certain Management
Agreement dated as of July 1, 1997, a copy of which is attached hereto as
Exhibit A and incorporated herein by such reference (the "Management
Agreement").
WHEREAS, the parties wish to amend certain specific terms of the
Management Agreement as herein after set forth.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and the Manager do hereby agree as follows:
1. Paragraph 3. Compensation and Benefits. is hereby deleted in its
entirety and substituted as follows:
3. Compensation and Benefits.
a. As his sole compensation payable by the Company under this
Agreement, the Manager shall be entitled to receive the following:
(1) an annual management fee of one hundred thousand
($100,000.00) dollars for the months of July, August, September and
October 1997, and thereafter until the first anniversary of the date of
the Management Agreement an annual management fee of one hundred twenty
thousand ($120,000) dollars, payable in twelve equal monthly
installments, with an annual incremental increases of the greater of
(i) the percentage increase in the Consumer Price Index, all items, as
published by the United States Department of Labor, since the date of
this Agreement (in the case of the first annual increase) or since the
most recent anniversary of the date of this Agreement (in the case of
all subsequent annual increases), or (ii) six percent (6%) of the
previous year's base management fee.
(2) an annual cash bonus equal to 3% of the
Company's Net Pre-Tax Income (as that term is hereinafter defined),
payable within 10 business days of the filing with the Securities and
Exchange Commission of the Company's annual report on Form 10-KSB. For
the purposes of this Agreement, "Net Pre-Tax Income" shall mean the
gross revenues of the Company, less the costs of the revenues earned,
less selling, general and administrative expenses, as reflected on the
financial statements of the Company for the fiscal years ending June
30, which such financial statements shall be prepared in accordance
with generally accepted accounting principles applied on a consistent
basis;
(3) options to purchase 100,000 shares of common
stock of the Company at an exercise price of $5.00 per share, which
such options shall immediately vest and be exercisable at any time and
from time to time during the Term of this Agreement; provided, however,
that any options which shall not have been exercised by the Manager
prior to the expiration of the Term of this Agreement pursuant to the
provisions of Section 5 hereof shall immediately expire; and
8
<PAGE>
(4) options to purchase 100,000 shares of common
stock of the Company at an exercise price of $4.00 per share, which
such options shall vest on November 1, 1997 and become immediately
exercisable thereafter at any time and from time to time during the
Term of this Agreement; provided, however, that any options which shall
not have been exercised by the Manager prior to the expiration of the
Term of this Agreement pursuant to the provisions of Section 5 hereof
shall immediately expire; and
(5) such other compensation, including, without
limitation, bonus compensation, as may be determined by a majority of
the Company's Board of Directors, in their sole discretion.
b. The Manager shall be reimbursed for all reasonable expenses
incurred in the rendering of the services hereunder.
c. The Manager is currently the record and beneficial owner of
an aggregate of 100,000 shares of the Company's common stock which represents
3.5% of the currently issued and outstanding common stock of the Company. For
the period commencing upon the Effective Date and ending on June 30, 1998, in
the event the Company issues any additional shares of common stock, the Manager
shall be issued such additional number of shares of the Company's common stock
(the "Anti-Dilutive Stock") from time to time as shall be necessary so as to
maintain such 3.5% ownership interests; provided, however, that in the event
this Agreement shall be terminated prior to the expiration of the Term; Manager
shall concurrent with such termination return the Anti-Dilutive Stock to the
Company.
2. The remaining terms and conditions of the Management Agreement
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written in Boca Raton, Florida.
WITNESS: THE COMPANY:
COVENTRY INDUSTRIES CORP.
By:
- - ---------------------------- -------------------------------------
John Murray, Secretary
THE MANAGER
- - ---------------------------- -------------------------------------
Robert Hausman
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COVENTRY INDUSTRIES CORP. FOR THE FISCAL YEAR ENDED
JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 52,188
<SECURITIES> 0
<RECEIVABLES> 1,196,993
<ALLOWANCES> 50,000
<INVENTORY> 1,017,140
<CURRENT-ASSETS> 2,518,576
<PP&E> 2,762,667
<DEPRECIATION> 571,408
<TOTAL-ASSETS> 7,375,120
<CURRENT-LIABILITIES> 2,384,517
<BONDS> 0
0
146
<COMMON> 3,033
<OTHER-SE> 4,592,099
<TOTAL-LIABILITY-AND-EQUITY> 7,375,120
<SALES> 7,869,961
<TOTAL-REVENUES> 7,869,961
<CGS> 6,532,924
<TOTAL-COSTS> 6,532,924
<OTHER-EXPENSES> 6,058,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,061
<INCOME-PRETAX> (6,994,546)
<INCOME-TAX> (180,750)
<INCOME-CONTINUING> (6,813,796)
<DISCONTINUED> (2,164,099)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,977,895)
<EPS-PRIMARY> (3.46)
<EPS-DILUTED> (3.46)
</TABLE>
