<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO 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.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida
-----------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
65-0353816
-----------------------------------------------------------------
(IRS Employer Identification No.)
7777 Glades Road, Suite 211, Boca Raton, FL 33434
-----------------------------------------------------------------
(Address of principal executive offices)
561-488-4802
-----------------------------------------------------------------
(Issuer's telephone number)
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (x) No ( ).
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. As of November 5, 1998 the
registrant had issued and outstanding 3,032,797 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS September 30, 1998 June 30, 1998
(unaudited)
------------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 141,918 $ 52,188
Accounts receivable, less $50,000 allowance for doubtful accounts 1,107,846 1,196,993
Inventory 866,550 1,071,140
Prepaid consulting fees 141,667 141,667
Other prepaid expenses 54,906 56,588
------------- ------------
Total current assets 2,312,887 2,518,576
PROPERTY, PLANT AND EQUIPMENT:
Land 156,502 156,502
Building and improvments 1,439,889 1,439,889
Machinery and equipment 1,572,696 1,570,972
Autos and trucks 197,718 166,712
Accumulated depreciation (635,107) (571,408)
------------- ------------
Total property, plant and equipment 2,731,698 2,762,667
OTHER ASSETS:
Goodwill, net 1,374,154 1,391,724
Prepaid consulting fees 318,816 354,232
Fabrication supplies 301,258 333,307
Deposits 13,794 14,614
------------- ------------
2,008,022 2,093,877
$ 7,052,607 $ 7,375,120
============= ============
</TABLE>
Continued
1
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
(unaudited)
------------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturites of long-term debt $ 430,295 $ 322,655
Lines of credit 497,307 335,902
Trade accounts payable 759,891 1,093,270
Accrued expenses 414,392 432,970
Preferred stock dividend payable 82,771 47,896
Note payable - former shareholder 151,824 151,824
------------- -------------
Total current liabilities 2,336,480 2,384,517
LONG TERM DEBT, LESS CURRENT PORTION 335,048 395,325
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 30
Series E Preferred stock, $.001 par value, 115,000 shares
authorized, issued and outstanding 115 115
5% Convertible preferred stock, $.001 par value, 2,500 shares
authorized, 1,250 shares issued and outstanding 1 1
Common Stock, $.001 par value, 25,000,000 shares
authorized, 3,032,797 shares issued and outstanding 3,033 3,033
Additional paid in capital 21,398,987 21,398,987
Stock to be earned (1,416,667) (1,416,667)
Prepaid media spots (500,000) (500,000)
Deferred compensation (394,625) (394,625)
Accumulated deficit (14,709,795) (14,495,596)
------------- -------------
Total stockholders' equity 4,381,079 4,595,278
------------- -------------
$ 7,052,607 $ 7,375,120
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended
September 30,
1998 1997
-------------- ------------
<S> <C> <C>
Revenues $ 1,615,595 $ 2,081,885
Cost of revenues 1,150,620 1,504,821
-------------- ------------
Gross profit 464,975 577,064
Operating expenses:
Selling, general and administrative expense 476,107 607,818
Marketing and public relations 825 --
Depreciation and amortization 84,395 82,554
Professional fees 39,872 47,471
-------------- ------------
Total operating expenses 601,199 737,843
-------------- ----------
Loss from operations (136,224) (160,779)
Other expenses:
Interest expense (43,100) (31,465)
Other income -- 27,311
-------------- ------------
Total other expenses (43,100) (4,154)
-------------- ------------
Loss before income tax provision and discontinued operations (179,324) (164,933)
Income tax benefit -- --
-------------- ------------
Loss before discontinued operations (179,324) (164,933)
Discontinued operations -- (31,642)
-------------- ------------
Net income (loss) (179,324) (196,575)
Preferred stock dividends paid (34,875) --
-------------- ------------
Net loss available to common shareholders $ (214,199) $ (196,575)
============== ============
Per share of common stock:
Net loss from continuing operations $ (0.06) $ (0.08)
Net loss from discontinued operations -- (0.01)
-------------- ------------
Net loss per common share $ (0.06) $ (0.09)
============== ============
Weighted average shares outstanding 3,032,797 2,171,021
============== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
COVENTRY INDUSTRIES CORP.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended
September 30,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(179,324) $(196,575)
Adjustments to reconcile net loss to
net cash (used) by operating activities
Depreciation 66,825 64,984
Amortization 17,570 17,570
Stock compensation -- 35,417
Changes in assets and liabilities, net of businesses
acquired
(Increase) decrease in:
Trade account receivable 89,147 (233,477)
Other receivable (163,539)
Inventory 236,639 (15,277)
Other current assets 1,682 (54,444)
Other assets 36,236 (7,268)
Increase (decrease) in:
Accounts payable (333,379) (173,848)
Accrued expenses (18,578) (10,107)
--------- ---------
Net cash (used) by operating activities (83,182) (736,564)
INVESTING ACTIVITIES:
Purchase of property and equipment (35,856) (103,712)
Purchase of assets of a business, net -- (30,993)
--------- ---------
Net cash used by investing activities (35,856) (134,705)
FINANCING ACTIVITIES:
Net payments on factoring line of credit (53,595) --
Net borrowings on line of credit - nonfactoring 215,000 --
Proceeds from note payable - shareholder 50,000 --
Payments on long term debt (72,637) (53,741)
Proceeds from long term debt 70,000 123,805
Issuance of common stock -- 667,762
--------- ---------
Net cash provided by financing activities 208,768 737,826
--------- ---------
Increase (decrease) in cash and cash equivalents 89,730 (133,443)
Cash and cash equivalents, beginning of period 52,188 335,321
--------- ---------
Cash and cash equivalents, end of period $ 141,918 $ 201,878
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
COVENTRY INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1998
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instruction of Form 10-QSB and Article 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results may differ from these estimates. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ended June 30, 1999.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on
Form 10-KSB as ammended for the year ended June 30, 1998 as filed with the
Securities and Exchange Commission.
Note 2 - Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
Note 3 - Supplemental Disclosures of Cash Flows
Cash paid (received) for:
Three months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Interest $ 43,100 $ 31,465
Income taxes $ -- $ --
Supplemental Disclosures of Non-Cash Investing and Financing Activities
In September 1997, 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
<PAGE>
for acquisition fees. The Company sold LPS effective May, 1998. In addition, a
note payable of $1,150,019 was converted to 115,000 shares of preferred stock in
a transaction not affecting cash.
Note 4 - Acqusition
On September 29, 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. .
Item 2. Management's Discussion and Analysis or Plan or Operation.
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of Private
Securities Litigation Reform Act 1995. Such statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon
or comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward looking statements. The Company does not
have a policy of updating or revising forward-looking statements and thus it
should not be assumed that silence by management of the Company over time means
that actual events are bearing out as estimated in such forward looking
statements.
Results of Operation
Consolidated revenues for the three months ended September 30, 1998
decreased $466,290 or approximately 22% from the three months ended September
30, 1997. This decrease is attributable to (i) a decrease in revenues generated
by the Company's Tennessee operations and the Federal Supply, Inc. ("Federal")
subsidiary of approximately $423,000 compared to the three months ended
September 30, 1997, and (ii) revenues for one month for Apollo of approximately
$41,000 are included in revenue for the three months ended September 30, 1997
compared to none for the three months ended September 30, 1998 as a result of
the sale of Apollo effective June, 1998. The drop in the Tennessee operations
revenue can be attributed to the fact that during the three months ended
September 30, 1997 the Tennessee operations had a large contract which did not
repeat in the current quarter. The drop in Federal's revenue is attributed to
weaker than expected market conditions. This weak market trend is not expected
to continue in future quarters.
<PAGE>
Gross profit margins as a percentage of revenues for the three months
ended September 30, 1998 remained stable at approximately 28%. The Company's
gross profit margin for the three months ended September 30, 1998 is comparable
to the Company's gross profit margin in the prior quarter as the operations
included in the Company are now comparable (mainly comprised of the Company's
Federal Supply subsidiary and the Company's Tennessee operations).
Operating expenses decreased approximately 19% for the three months
ended September 30, 1998 compared to the three months ended September 30, 1997
primarily as a result of decreased selling, general and administrative
expenses ("SG&A"). SG&A on a consolidated basis decreased approximately $132,000
or 22 % during the three months ended September 30, 1998 from the three months
ended September 30, 1997 as a result of reductions in SG&A expenses attributable
to one time costs associated with the relocation of the Company's principal
executive offices from Knoxville, Tennessee to Boca Raton, Florida included in
the prior comparable quarter. Other operating expenses were non-cash items
including depreciation and amortization and professional fees of approximately
$124,000 for the three months ended September 30, 1998 compared to approximately
$130,000 for the three months ended September 30, 1997.
The Company's discontinued operations reflect the operations of LPS
Acqusition, Corp., which subsidiary the Company sold effective May, 1998.
The Company reported a net loss of $179,324 for the three months ended
September 30, 1998 as compared to a net loss of $196,575 for the three
months ended September 30, 1997. Approximately $124,000 of the net loss for the
three months ended September 30, 1998 is attributable to non-cash items
including depreciation and amortization of approximately $84,000 and
approximately $40,000 of costs associates with professional fees.
Liquidity and Capital Resources
The Company's working capital at September 30, 1998 was a deficiency of
$23,593 versus working capital of $134,059 at June 30, 1998. The decrease in
working capital is primarily attributable to a decrease in inventory. The
Company has made a conscious effort to limit inventory levels in light of the
reduced sales for the quarter. The days sales in accounts receivable is
approximately 64 days compared to 51 days at June 30, 1998. The increase in the
days sales is attributed to a slow down in the pay cycle of certain customers at
the Company's Federal operation. This trend is not expected to continue. The
inventory turnover is 76 days compared to 83 days at June 30, 1998. 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 approximately $83,182 of cash for
operating activities for the three months ended September 30, 1998, $35,856 for
investing activities and received approximately $208,768 from financing
activities, primarily from increased short term debt.
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
<PAGE>
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.
Year 2000
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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
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
<PAGE>
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
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.
(b) Reports on Form 8-K.
During the three months ended the Company filed the following Reports on
Form 8-K with the Securities and Exchange Commission:
1. On July 10, 1998 the Company filed a Report on Form 8-K disclosing its
sale of LPS Acquisition Corp.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Coventry Industries Corp.,
a Florida corporation
Date: November 10, 1998 By: /s/ Robert Hausman
-------------------
Robert Hausman,
President
