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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
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.
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(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0353816
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(IRS Employer Identification No.)
7777 Glades Road, Suite 211, Boca Raton, FL 33434
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(Address of principal executive offices)
561-488-4802
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(Issuer's telephone number)
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(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 January 31, 1998 the
registrant had issued and outstanding 3,005,855 shares of common stock.
Transitional Small Business Disclosure Format (check one); Yes ( ) No (x)
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The Registrant hereby amends its Quarterly Report on Form 10-QSB for
the three month and six month period ended December 31, 1997 as follows:
Coventry Industries Corp.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
----------------- -------------
(unaudited) *
<S> <C> <C>
Assets
Current Assets
Cash $ 19,571 $ 335,321
Accounts receivable, less $148,300 and $55,442
allowance for doubtful accounts, respectively 1,526,659 1,017,949
Other receivable 289,702 47,678
Inventory 2,300,034 1,888,235
Prepaid expenses 256,890 207,238
------------ ------------
Total current assets 4,392,856 3,496,421
------------ ------------
Property, plant and equipment, less $489,650 and
$324,062 accumulated depreciation, respectively 3,053,839 2,914,731
------------ ------------
Other assets
Excess cost over fair value of assets acquired 3,151,885 2,198,441
Other 139,582 28,330
Prepaid consulting fees 360,415 531,249
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3,651,882 2,758,020
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$ 11,098,577 $ 9,169,172
============ ============
Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 1,361,145 $ 915,630
Accrued expenses 390,924 428,026
Factoring line of credit 307,236 398,858
Income tax payable 80,100 59,030
Current maturities of long-term debt 212,029 234,447
Notes payable 27,958 142,731
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Total current liabilities 2,379,392 2,178,722
------------ ------------
Deferred income taxes 130,000 130,000
Long term debt, less current portion 513,965 575,116
Note payable 819,577 1,150,019
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1,463,542 1,855,135
------------ ------------
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Stockholder's Equity
Series A Preferred stock, $.001 par value, 30 shares
authorized, 30 shares issued and outstanding -- --
Series C Preferred stock, $.001 par value, 30,000 shares
authorized, 30,000 shares issued and outstanding 30 30
Series D Preferred stock, $.001 par value, 1,000,000 shares
authorized, none issued and outstanding -- --
Series E Preferred stock, $.001 par value, 2,000,000 shares
authorized, 115,000 issued and outstanding 115 --
Series F Preferred stock, $.001 par value, 2,000,000 shares
authorized, 75,000 issued and outstanding 75 --
Common Stock, $.001 par value, 25,000,000 shares
authorized, 2,952,446 and 1,952,934 shares issued and
outstanding, respectively 2,952 1,953
Additional paid-in capital 15,941,978 12,567,700
Prepaid media spots (500,000) (500,000)
Stock to be earned (1,216,667) (1,416,667)
Accumulated deficit (6,972,840) (5,517,701)
------------ ------------
Total stockholder's equity 7,255,643 5,135,315
------------ ------------
$ 11,098,577 $ 9,169,172
============ ============
</TABLE>
* Condensed from audited financial statements
See accompanying notes to condensed consolidated financial statements
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Coventry Industries Corp.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 2,842,818 $ 1,191,411 $ 5,196,354 $ 2,348,782
Cost of sales 2,185,749 687,164 3,881,832 1,360,961
----------- ----------- ----------- -----------
Gross profit 657,067 504,247 1,314,522 987,821
----------- ----------- ----------- -----------
Operating expenses
Seliing, general and administrative expenses 1,101,554 161,118 1,817,676 318,087
Depreciation and amortization 136,620 67,500 219,174 135,000
Professional fees 600,000 -- 647,741 --
----------- ----------- ----------- -----------
1,838,174 228,618 2,684,321 451,087
----------- ----------- ----------- -----------
Income (loss) from operations (1,181,108) 275,629 (1,369,798) 563,734
----------- ----------- ----------- -----------
Other expense
Interest expense (65,285) (100,500)
Interest income 2,255 2,595
Other (14,428) 12,564
----------- ----------- ----------- -----------
(77,458) -- (85,341) --
----------- ----------- ----------- -----------
Income (loss) before income tax provision (benefit) (1,268,564) 276,629 (1,455,139) 563,734
Income tax (benefit) 0 90,000 -- 177,500
----------- ----------- ----------- -----------
Net Income (loss) $(1,258,584) $ 185,629 $(1,455,139) $ 359,234
=========== =========== =========== ===========
Earnings per common share:
Net Income (loss) per common share $ (0.45) $ 0.31 $ (0.59) $ 0.60
=========== =========== =========== ===========
Weighted average shares outstanding 2,790,371 602,709 2,461,003 602,709
=========== =========== =========== ===========
</TABLE>
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Coventry Industries Corp.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 1997 and 1996
(Unaudited)
1997 1996
-------- --------
Operating Activities:
Net income (loss) $(1,455,139) $ 359,234
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and depreciation 219,174 135,000
Stock compensation 591,904
Changes in operating assets and liabilities:
(Increase) decrease in receivable (83,597) 4,919
(Increase) decrease in other receivable (168,243) 0
(Increase) decrease in inventory (243,799) (386,304)
(Increase) decrease in other assets (111,252) 0
(Increase) decrease in prepaid expenses (49,652) (153,490)
Increase (decrease) in accounts payable 350,412 (94,178)
Increase (decrease) in accrued expenses (37,194) 144,294
----------- ----------
Net cash used in operations (987,386) 9,475
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Investing Activities:
Increase in start up costs -- (201,469)
Purchase of property and equipment (132,241) (322,930)
Purchase of assets of a business, net (64,927)
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Net cash used in investing activities (197,168) (524,399)
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Financing Activities:
Payments of long-term debt (85,646) (99,957)
Notes payable, net 165,499 (132,667)
Issuance of common stock 788,951 0
(92,473)
----------- ----------
Net cash provided by (used in) financing
activities 868,804 (325,097)
----------- ----------
Net increase (decrease) in cash (315,750) (840,021)
Cash, beginning of the period 335,321 938,487
----------- ----------
Cash, end of the period $ 19,571 $ 98,466
=========== ==========
See accompanying notes to condensed consolidated financial statements
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PART I - FINANCIAL INFORMATION
Note 2 - Stockholder's Equity
Yucatan Holding Company, a Florida corporation ("Yucatan") was the
shareholder of record of an aggregate of 504,891 shares of the Company's
common stock. Of such amount, Jayme Dorrough, the sole officer, director and
shareholder of Yucatan held sole voting and depository power as to 304,891
shares and Ella Chesnutt, a former officer and director of both the Company
and Yucatan, held sole voting and depository power as to the remaining 200,000
shares. On October 22, 1997 the Company repurchased the 304,891 shares of
common stock from Yucatan over which Mrs. Dorrough held voting and depository
power, which represented approximately 11.8% of the then issued and
outstanding common stock for $.25 per share. Following such repurchase, the
shares were returned to the treasury of the Company with the status of
authorized but unissued common stock, thereby reducing the number of issued
and outstanding shares of common stock to 2,278,455 shares.
Following such transaction, Mrs. Dorrough, an officer of the Company
and a member of the Board of Directors of the Company, voluntarily resigned
her seat on the Company's Board and from all offices with the Company.
Note 3 - Earnings (Loss) Per Common Share
During the three months ended December 31, 1997 the Company adopted
SFAS No. 128 "Earnings Per Share." SFAS No. 128 establishes standards for
computing and presenting basic and diluted earnings (loss) per share. Basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding for the period.
In the computation of diluted earnings (loss) per share, the weighted average
number of shares is adjusted for the effect of all dilutive potential common
stock. In computing diluted earnings (loss) per share, the Company has
utilized the treasury stock method. All prior periods earnings (loss) per
share data have been restated to conform with SFAS No. 128.
The Company's potential issuable shares of Common Stock pursuant to
outstanding stock purchase options and warrants (totaling 19,882 with a price
of $2.50 per share) are excluded from the Company's diluted computation as
their effect would be anti-dilutive to the Company's net loss.
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Note 4 - Pro forma Financial Information
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisition of Federal and LPS
had occurred July 1, 1997 and 1996.
Six Months Ended
December 31,
------------------
1997 1996
---- ----
Revenue $ 5,508,086 $3,658,678
Net loss $(1,499,065) $( 588,838)
Net loss per share $ (.59) $ (.67)
The above transaction was accounted for by the purchase method, and,
accordingly, the results of operations of the acquired business have been
included in the accompanying consolidated financial statements form the date
the Company assumed operational control of the acquired entity.
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.
6
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Results of Operations
Six months ended December 31, 1997 as compared to six months ended December
31, 1996
During the six months ended December 31, 1997 the Company continued
its expansion plans through the acquisitions of LPS Acquisition Corp. ("LPS")
and Apollo Pipe & Value ("Apollo"). Consolidated revenues for the six months
ended December 31, 1997 increased $2,847,572 or approximately 121% from the
six months ended December 31, 1996. This increase is attributable to (i) an
increase in revenues generated by the Company's Manufacturing Division, (ii)
revenues for four months for each of LPS and Apollo, and (iii) two full
quarters 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 six months
ended December 31, 1997 decreased approximately 17% from the comparable six
months in fiscal 1996. The Company's gross profit percentage has decreased
from prior quarters due to the impact of Federal and LPS on the consolidated
group. Historically, Federal and LPS have experienced lower profit margins
than the Company's other subsidiaries in the comparable quarter. Such reduced
gross profit margins have adversely effected the overall profitability of the
Company. Management of the Company does not anticipate a change in the gross
profit margins reported by Federal and LPS as a result of the nature of their
businesses.
Operating expenses increased approximately 495% for the six months
ended December 31, 1997 from the six months ended December 31, 1996 primarily
as a result of increased selling, general and administrative expenses ("SG&A").
SG&A on a consolidated basis increased approximately 475% during the six
months ended December 31, 1997 from the six months ended December 31, 1996 as
a result of the addition of SG&A expenses attributable to the inclusion of
Federal (approximately $326,000) which was not part of the consolidated group
in the prior period, the continued expansion of the Company, including SG&A
associated with the LPS (approximately $202,000) and Apollo (approximately
$37,000) acquisitions, other ongoing growth of the Company's operations and
one time costs associated with the relocation of the Company's principal
executive offices from Knoxville, Tennessee to Boca Raton, Florida. Other
operating expenses were non-cash items including depreciation and amortization
and professional fees related to current and future expansion of the Company's
operations of approximately $700,000.
The Company reported a net loss of $1,455,139 for the six months
ended December 31, 1997 as compared to net income of $359,234 for the six
months ended December 31, 1996. Approximately $919,000 of the net loss is
attributable to non-cash items including depreciation and amortization of
approximately $219,000, and approximately $647,000 of costs associated with
certain professional fees. The remaining portion of the net loss is mainly
attributable to operating losses at Federal (approximately $63,000) and LPS
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<PAGE>
Consumer Products Division
Revenues for the Consumer Products Division increased approximately
266% for the six months ended December 31, 1997 versus the six months ended
December 31, 1996. This increase reflects revenues from LPS which the Company
acquired in September 1997. LPS revenues are currently annualized at
approximately $2.6 million. The Consumer Products Division reported a loss
from operations of approximately $214,000. The Company did not report income
from operations for each of its divisions during the comparable period ended
December 31, 1996.
Three months ended December 31, 1997 as compared to three months ended
December 31, 1996
Consolidated revenues for the three months ended December 31, 1997
increased $1,651,405 or approximately 139% from the three months ended
December 31, 1996. This increase is attributable to (i) an increase in
revenues generated by the Company's Manufacturing Division, (ii) revenues for
three months for each of LPS and Apollo which were acquired by the Company in
the first quarter of the current fiscal year, and (iii) a full quarter 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 three months
ended December 31, 1997 decreased approximately 19% from the comparable
quarter in fiscal 1996.
Operating expenses increased approximately 704% for the three months
ended December 31, 1997 from the three months ended December 31, 1996
primarily as a result of increased selling, general and administrative
expenses ("SG&A"). SG&A on a consolidated basis increased approximately 584%
during the three months ended December 31, 1997 from the three months ended
December 31, 1996 as a result of the addition of SG&A expenses attributable to
the continued expansion of the Company, including SG&A associated with the LPS
and Apollo acquisitions and the continued growth of the Company's operations.
Other operating expenses were non-cash items including depreciation and
amortization and professional fees.
The Company reported a net loss of $1,258,564 for the three months
ended December 31, 1997 as compared to net income of $185,629 for the three
months ended December 31, 1996. Approximately $236,000 of the net loss is
attributable to non-cash items, including depreciation and amortization. The
remaining portion of the net loss is attributable to operating losses at
Federal (approximately $20,000), LPS (approximately $382,000) and corporate
overhead (approximately $83,000).
8
<PAGE>
Manufacturing Division
For the three months ended December 31, 1997 the Manufacturing
Division reported an increase in revenues of approximately 139% from the three
months ended December 31, 1996. This increase is attributable to (i) revenues
from Federal for a full fiscal quarter, (ii) continued increase in revenues
from both Industrial Fabrication & Repair, Inc. ("IFR") and its subsidiary,
Maintenance Requisition Order Corp. ("MRO"), (iii) revenues from Apollo for a
full fiscal quarter, and (iv) 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 income from operations of approximately
$119,000 for the three months ended December 31, 1997; the Company did not
report income from operations for each of its divisions during the comparable
period ended December 31, 1996.
Staffing Division
For the three months ended December 31, 1997 the Staffing Division
reported a decrease in revenues of approximately 22% from the three months
ended December 31, 1996. The decrease in revenues can be attributed to the
first quarter of internal realignment of one of the Company's subsidiaries,
OIS, which was realigned to fall within the Manufacturing Division, whose
client base was more synergistic to OIS, so as to permit greater operating and
management efficiencies. The remaining subsidiary within the Staffing
Division, AIM, historically reports lower margins than OIS. The Staffing
Division reported a loss from operations of approximately $111,000 for the
three months ended December 31, 1997 which is attributable to a concentration
of revenues generated from lower margin accounts; the Company did not report
income from operations for each of its divisions during the comparable period
ended December 31, 1996.
Consumer Products Division
Revenues for the Consumer Products Division increased approximately
557% for the three months ended December 31, 1997 versus the three months
ended December 31, 1996. This increase reflects revenues from LPS which the
Company acquired in September 1997. The Consumer Products Division reported a
loss from operations of $586,000 for the three months ended December 31, 1997.
The Company did not report income from operations for each of its divisions
during the comparable period ended December 31, 1996.
Liquidity and Capital Resources
The Company's working capital at December 31, 1997 was $2,513,464
versus $1,817,699 at June 30, 1997. The increase in working capital is
attributable to increases in accounts receivable and inventory as a result of
the Company's expanded operations and increased revenues. The acquisition of
LPS Acquisition Corp. in September 1997 had the effect of adding approximately
$413,000 of accounts receivable over the June 1997 balance. The days sales is
stable at approximately 45 days. This acquisition also had the effect of
adding $118,000 of inventory over the June 1997 balance. The inventory
turnover is 98 days compared to 90 days at June 30, 1997. While the Company
does not presently anticipate any significant capital expenditures, in order
to pursue the Company's plan of operations for fiscal 1998, consisting of its
normal business operations and the modernization of the LPS facility,
including the
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relocation of the facility to a more suitable locale near its primary customer
base and the addition of a computerized mixing line, it will be necessary for
the Company to raise additional working capital. Accordingly, subsequent to
December 31, 1997 on January 16, 1998 the Company successfully completed a
private placement of 1,750 shares of 5% Convertible Preferred Stock at a
purchase price of $1,000 per share, resulting in gross proceeds of $1,250,000
all as more fully described in Form 8-K filed on January 29, 1998. $500,000 of
the purchase price paid for the 1,750 shares of 5% Convertible Preferred
Stock, as well a certificate for 500 shares of the 5% Convertible Preferred
Stock, has been deposited in escrow by the purchaser pending shareholder
approval of the conversion terms of the 5% Convertible Preferred Stock as same
relates to the 500 shares held in escrow and the additional 750 to be
purchased as hereinafter described. Pursuant to the terms of the private
placement, should the Company obtain shareholder approval, the purchaser will
also purchase an additional 750 shares of 5% Convertible Preferred Stock at
$1,000 per share, resulting in additional gross proceeds to the Company of
$1,250,000, including the $500,000 presently held in escrow. 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 current on file with the Securities and Exchange Commission
(www.sec.gov) for a complete description of the private placement and the
conversion terms of the 5% Convertible Preferred Stock. Assuming approval by
the Company's shareholders, of which there can be no assurance, the gross
proceeds to the Company of an additional $1,250,000 from release of the
escrowed funds and the sale of an additional 750 shares of 5% Convertible
Preferred Stock, together with the funds received to date from the private
placement, will be sufficient to provide for the Company's working capital
needs in 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 1998. As of the date
hereof, the Company has not identified any alternative sources of working
capital. Additionally, a substantial portion (approximately $2,136,000) 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.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Coventry Industries Corp.
a Florida corporation
Date: August 6, 1998 By: /s/ Robert Hausman
---------------------------
Robert Hausman,
President
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