<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB/A-2
(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]
2
<PAGE>
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
3
<PAGE>
Explanatory Note
This Form 10-KSB/A-2 is filed to amend the following items:
1. Item 6 - Add disclosure that the Company's auditors have issued
a going concern opinion.
2. Item 7 - Revised auditors opinions to reflect a going concern qualification
and to add the audit report of Reel & Swafford, PLLC.
3. Item 9 - Modify the biography of Robert Hausman.
4. Exhibits - Add accountants consent.
<PAGE>
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.
The report of the Company's independent auditors includes an
explanatory paragraph that describes the Company's ability to continue as a
going concern. The Company is exploring various alternatives to raise additional
capital and to reduce expenses.
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 7.4% 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 affected 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 85.5% 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 79.7% 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 of approximately $402,000, marketing and public
relation expenses of approximately $3,711,000, and professional fees (primarily
paid through the issuance of common stock) related to current and future
expansion of the Company's operations of approximately $455,000. SG&A as a
percentage of revenue increased to 36% 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 $6,818,000 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 $5,372,000 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 and IFR and the discontinued
operations of LPS.
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 93% 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 $447,000 for the year
ended June 30, 1998 and approximately $115,000 for the year ended June 30, 1997.
The loss for the year ended June 30, 1998 is represented by operating losses at
Federal Supply (approximately $148,000) and the Company's Tennessee operations
(approximately $299,000) which loss was made up primarily of marketing valuation
adjustments.
Staffing Division
For the year June 30, 1998 the Staffing Division reported a decrease in
revenues of approximately 4% from the year ended June 30, 1997 from $1,033,433
for the year ended June 30, 1997 to $990,746 for the year ended June 30, 1998.
The Staffing Division reported a loss from operations of approximately $38,000
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 $55,420 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 LPS, which
the Company sold effective May, 1998. The Consumer Products Division reported a
loss from operations of approximately $245,228 for the year ended June 30, 1997.
Liquidity and Capital Resources
The Company's working capital at June 30, 1998 was $134,059 versus
$1,817,699 at June 30, 1997. The decrease in working capital is attributable
primarily to a decrease in inventory. The days sales in accounts receivable is
51 days compared to 45 days in 1997. The inventory turnover is 83 days compared
to 90 days at June 30, 1997. 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.
The Company used $1,413,967 of cash for operating activities in 1998,
$580,971 for investing activities (primarily relating to acquisitions) and
received $1,711,805 in cash from financing activities (primarily from the
exercise of options and the sale of stock). The Company had a net decrease in
cash of $283,133 for the year ended June 30, 1998.
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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Sweeney, Gates & Co.
Fort Lauderdale, Florida
September 28, 1998
F-1
<PAGE>
[Reel & Swafford, PLLC Letterhead]
Report of Independent Auditors
To the Board of Directors
Industrial Fabrication and Repair, Inc.
We have audited the accompanying balance sheet of Industrial Fabrication and
Repair, Inc. (the Company) as of June 30, 1998, and the related statements of
operations, changes in stockholder's equity and cash flows for the year then
ended. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Industrial Fabrication and
Repair, Inc. as of June 30, 1998 and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Reel & Swafford, PLLC
Certified Public Accountants
Knoxville, Tennesse
September 11, 1998, except for Note 9 as to which the date is September 30, 1998
F-2
<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-3
<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-4
<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, 1,250 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-5
<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 653,738 --
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-6
<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-7
<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 - - - - - - - - 8,334 8
Common stock issued in
connection with acquisition
of FSI - - - - - - - - 145,000 145
Common stock issued in
connection with
compensation to certain
consultants and employees - - - - - - - - 71,772 72
Options granted in
connection with consulting
services - - - - - - - - - -
Options exercised - - - - - - - - 505,118 505
Conversion of convertible
preferred stock - - - - - - (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 99,992 - - 100,000
Common stock issued in
connection with acquisition
of FSI 422,668 - - 422,813
Common stock issued in
connection with
compensation to certain
consultants and employees 780,581 - - 780,653
Options granted in
connection with consulting
services 2,180,455 $(1,416,667) - 763,788
Options exercised ) 512,795 - - 513,300
Conversion of convertible
preferred stock 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-8
<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-9
<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-10
<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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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 $ (446,607) $ (38,003) $ - $ (5,573,891) $(6,058,501)
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-25
<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 to 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 marketing and public relations of good will in the
current fiscal year, 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-26
<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-27
<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 at 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-28
<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 July to October 1994, Mr. Hausman was
engaged in organization and pre-operating activity for Federal. 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>
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
<PAGE>
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
27
<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
23.1 Consent of Reel & Swafford, PLLC
27 Financial Data Schedule
28
<PAGE>
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
December 18, 1998
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, December 18, 1998
- ---------------------------- Chairman
Robert Hausman
/s/ Mark Weisz Director December 18, 1998
- ----------------------------
Mark Weisz
/s/ Lester Gann Director December 18, 1998
- ----------------------------
Lester Gann
/s/ C. Lawrence Rutstein Director December 18, 1998
- ----------------------------
C. Lawrence Rutstein
29
<PAGE>
REEL & SWAFFORD
Certified Public Accountants
<TABLE>
<CAPTION>
<S> <C> <C>
Office Address Mailing Address
2611 Emoriland Blvd. American Institute of Certified Public Accountants P.O. Box 27599
Knoxville, Tennessee 37917 SEC Practice Section - AICPA Knoxville, TN 37917-7599
(423) 637-7196 Telephone Tennessee Society of Certified Public Accountants (423) 637-6437 Facsimile
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Coventry Industries, Corp.
We hereby consent to the use of this Amended Form 10-KSB of our report dated
September 11, 1998, except for Note 9 as to which date is September 30, 1998,
relating to the financial statements (not presented separately in the Amended
Form 10-KSB) of Industrial Fabrication & Repair, Inc. and Workforce Properties
Corp.
/s/ Reel & Swafford, PLLC
- -----------------------------
REEL & SWAFFORD, PLLC
Certified Public Accountants
December 18, 1998