<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 December 31, 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.
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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.)
1900 Corporate Blvd., Suite 400 East, Boca Raton, FL 33431
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(Address of principal executive offices)
561-988-2544
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(Issuer's telephone number)
7777 Glades Road., Suite 211, Boca Raton, FL 33434
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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, 1999 the
registrant had issued and outstanding 6,300,000 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND JUNE 30, 1998
<TABLE>
<CAPTION>
December June
ASSETS 31, 1998 30,1998
------ -------- -------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,573 $ 52,188
Accounts receivable, net of allowance for doubtful accounts
of $50,000 2,956,815 1,196,993
Inventory 1,008,138 1,071,140
Other current assets 211,957 198,255
----------- ------------
Total current assets 4,208,483 2,518,576
Property, plant and equipment, net of accumulated depreciation 2,766,525 2,762,667
Goodwill, net of accumulated amortization 2,369,862 1,391,724
Other assets 596,374 702,153
----------- ------------
Totals $ 9,941,244 $ 7,375,120
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 290,381 $ 322,655
Short-term notes payable 504,547 335,902
Accounts payable and accrued expenses 1,793,383 1,574,136
Demand note payable to stockholder 282,000
Note payable to former stockholder 175,000 151,824
----------- ------------
Total current liabilities 3,045,311 2,384,517
Long-term debt, net of current portion 1,762,246 395,325
Minority interest 123,000
----------- ------------
Total liabilities 4,930,557 2,779,842
----------- ------------
Stockholders' equity:
Series A preferred stock, $.001 per 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, 55,000 and 115,000 shares issued and out-
standing 55 115
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,
6,300,000 and 3,032,797 shares issued and outstanding 6,300 3,033
Additional paid-in capital 23,485,967 21,398,987
Unearned compensation and advertising fees (2,311,292) (2,311,292)
Accumulated deficit (16,170,374) (14,495,596)
----------- ------------
Total stockholders' equity 5,010,687 4,595,278
----------- ------------
Totals $ 9,941,244 $ 7,375,120
=========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-1-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended December 31, Ended December 31,
---------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 3,873,589 $ 5,196,354 $ 2,257,994 $ 2,842,816
Cost of revenues 2,581,906 3,881,832 1,431,286 2,185,749
----------- ----------- ----------- -----------
Gross profit 1,291,683 1,314,522 826,708 657,067
----------- ----------- ----------- -----------
Selling, general and administrative
expenses 2,409,324 2,317,676 1,932,392 1,601,554
Professional fees 192,237 647,471 152,365 600,000
Depreciation and amortization 192,667 219,174 108,272 136,620
----------- ----------- ----------- -----------
Totals 2,794,228 3,184,321 2,193,029 2,338,174
----------- ----------- ----------- -----------
Operating loss (1,502,545) (1,869,799) (1,366,321) (1,681,107)
----------- ----------- ----------- -----------
Other income (expense):
Interest (94,932) (100,500) (51,832) (65,285)
Other (7,551) 15,160 (7,551) (12,172)
----------- ----------- ----------- -----------
Totals (102,483) (85,340) (59,383) (77,457)
----------- ----------- ----------- -----------
Net loss (1,605,028) (1,955,139) (1,425,704) (1,758,564)
Dividends on preferred stock 69,750 34,875
----------- ----------- ----------- -----------
Net loss applicable to common stock $(1,674,778) $(1,955,139) $(1,460,579) $(1,758,564)
=========== =========== ============ ===========
Basic loss per common share $(.45) $(.79) $(.33) $(.63)
===== ===== ===== =====
Weighted average common shares
outstanding 3,732,145 2,461,003 4,431,492 2,790,371
=========== =========== ============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock
-----------------------------------------------------------------------
Series A Series C Series E 5% Convertible
--------------- --------------- ---------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1998 30 30,000 $30 115,000 $115 1,250 $1
Common stock issued
for:
Purchase business
combination
Conversion of Series
E preferred stock (60,000) (60)
Professional and
other services,
employee compensa-
tion and other
expenses
Dividends declared
Net loss
-- --- ------ --- ------ ----- ----- --
Balance, December
31, 1998 30 $ - 30,000 $30 55,000 $ 55 1,250 $1
== === ====== === ====== ===== ===== ==
</TABLE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
Unearned
Compensa-
Common Stock Additional tion and
------------------ Paid-in Advertising Accumulated
Shares Amount Capital Fees Deficit Total
------ ------ ------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1998 3,032,797 $3,033 $21,398,987 $(2,311,292) $(14,495,596) $4,595,278
Common stock issued
for:
Purchase business
combination 946,000 946 876,804 877,750
Conversion of Series
E preferred stock 600,000 600 (540)
Professional and
other services,
employee compensa-
tion and other
expenses 1,721,203 1,721 1,210,716 1,212,437
Dividends declared (69,750) (69,750)
Net loss (1,605,028) (1,605,028)
--------- ------ ----------- ----------- ------------ ----------
Balance, December
31, 1998 6,300,000 $6,300 $23,485,967 $(2,311,292) $(16,170,374) $5,010,687
========= ====== =========== =========== ============ ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Operating activities:
Net loss $(1,605,028) $(1,955,139)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 133,996 167,776
Amortization 58,671 51,398
Common stock issued for services, compensation and
other expenses 1,212,437 591,904
Changes in operating assets and liabilities, net of effects of
purchased businesses:
Accounts receivable 93,924 (83,597)
Inventory 97,449 (243,799)
Other current assets 6,827 (217,895)
Other assets 71,653 (111,252)
Accounts payable and accrued expenses (214,991) 813,218
----------- -----------
Net cash used in operating activities (145,062) (987,386)
----------- -----------
Investing activities:
Purchase of property and equipment (26,209) (132,241)
Purchases of businesses, net of cash received (2,636) (64,927)
----------- -----------
Net cash used in investing activities (28,845) (197,168)
----------- -----------
Financing activities:
Net short-term borrowings (repayments) 168,645 (85,646)
Proceeds from note payable to stockholder 170,000
Payments on note payable to stockholder (20,000)
Proceeds of long-term borrowings 165,499
Repayments of long-term borrowings (165,353)
Issuance of common stock 788,951
----------- -----------
Net cash provided by financing activities 153,292 868,804
----------- -----------
Decrease in cash and cash equivalents (20,615) (315,750)
Cash and cash equivalents, beginning of period 52,188 335,321
----------- -----------
Cash and cash equivalents, end of period $ 31,573 $ 19,571
=========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 94,932 $ 100,500
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, necessary
to present fairly the financial position of Coventry Industries
Corp. and its subsidiaries (collectively, the "Company") as of
December 31, 1998 and its results of operations for the six and
three months ended December 31, 1998 and 1997, changes in
stockholders' equity for the six months ended December 31, 1998
and cash flows for the six months ended December 31, 1998 and
1997. Certain terms used herein are defined in the audited
consolidated financial statements of the Company as of June 30,
1998 and for the years ended June 30, 1998 and 1997 (the
"Audited Financial Statements") included in the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1998 that was
previously filed with the United States Securities and Exchange
Commission (the "SEC"). Accordingly, these unaudited condensed
consolidated financial statements should be read in conjunction
with the Audited Financial Statements and the other information
also included in the Form 10-KSB.
The results of the Company's operations for the six and three
months ended December 31, 1998 are not necessarily indicative of
the results of operations for the full year ending June 30,
1999.
Note 2 - Earnings (loss) per common share:
As further explained in Note 1 to the Audited Financial
Statements, the Company presents basic and, if appropriate,
diluted earnings (loss) per share in accordance with the
provisions of Statement of Financial Accounting Standards No.
128, Earnings per Share ("FAS 128"). Diluted per share amounts
have not been presented in the accompanying unaudited condensed
consolidated statements of operations because the Company had a
net loss for the six and three months ended December 31, 1998
and 1997 and, accordingly, the assumed effects of the conversion
of all of the Company's outstanding shares of 5% convertible
preferred stock and the exercise of all of the Company's
outstanding stock options and the application of the treasury
stock method would have been anti-dilutive.
-5-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Purchase business combination:
On December 7, 1998, the Company consummated an agreement
whereby it acquired 80.1% of the issued and outstanding shares
of common stock of BSD Healthcare Industries, Inc. ("BSD") in
exchange for 946,000 shares of the Company's common stock (or
approximately 19.9% of its then outstanding common shares). BSD
was incorporated in 1989 as a "blind pool" or blank check"
company for the purpose of either merging with or acquiring an
operating company. BSD did not conduct any operations of a
commercial nature or have any significant activities until
February 1, 1998 when it acquired 100% of the common stock of
two commonly-controlled companies, Respiratory Care Services,
Inc. ("RCSI") and RCS Subacute, Inc. ("Subacute"). BSD is a
holding company. RCSI, which was incorporated on July 1, 1988,
provides quality respiratory therapy staff in a variety of
health care settings. Subacute, which was incorporated on
October 19, 1995, provides credentialed, licensed therapists
experienced in all phases of skilled and subacute respiratory
care. These services are provided primarily to Medicare
patients.
The Company has accounted for the acquisition of its 80.1%
interest in BSD pursuant to the purchase method of accounting
and, accordingly, the accompanying historical condensed
consolidated financial statements include the results of
operations of BSD and its subsidiaries from December 7, 1998,
the date of acquisition. The cost of the acquisition of BSD and
its subsidiaries was $877,750, of which $827,750 is the
estimated fair value of the 946,000 shares of common stock
issued by the Company to the former stockholders of BSD at the
date of acquisition and the balance of $50,000 is the
approximate amount of the Company's cash payments for legal,
accounting and other costs related to the purchase.
The cost of acquiring BSD and its subsidiaries, which exceeded
the fair value of the net assets acquired by $1,036,809, was
allocated as follows:
Cash and cash equivalents $ 47,364
Accounts receivable 1,853,746
Goodwill 1,036,809
Other current and noncurrent assets 111,267
Long-term debt (1,500,000)
Other current liabilities (548,436)
Minority interest in subsidiaries of BSD (123,000)
---------
Total cost of acquisition $ 877,750
=========
-6-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Purchase business combination (concluded):
The following unaudited pro forma information (in thousands,
except per share amounts) shows the results of operations for
the six and three months ended December 31, 1998 and 1997 as
though the acquisition of BSD and its subsidiaries had been
consummated on July 1, 1997:
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
December 31, December 31,
---------------------- ----------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $ 6,228 $ 7,551 $ 3,391 $ 3,976
Cost of revenue 4,146 5,446 2,141 2,895
------- ------- ------- -------
Gross profit 2,082 2,105 1,250 1,081
Other expenses 3,335 3,709 (2,521) 2,685
------- ------- ------- -------
Net loss (1,253) (1,604) (1,271) (1,604)
Dividends on preferred stock 70 35
------- ------- ------- -------
Net loss applicable to common
stock $(1,323) $(1,604) $(1,306) $(1,604)
======= ======= ======= =======
Basic loss per common share $(.31) $(.47) $(.29) $(.43)
===== ===== ===== =====
Weighted average common
shares outstanding 4,275,427 3,407,003 4,572,058 3,736,371
========= ========= ========= =========
</TABLE>
In addition to combining the historical results of operations of
the Company and BSD and its subsidiaries for each period, the
unaudited pro forma results of operations include adjustments
primarily to reflect for the entire period (i) the amortization
of the goodwill recorded in connection with the acquisition of
RCS based on an estimated useful life of five years and (ii)
interest expense on a term loan obtained by BSD to finance the
acquisition of its subsidiaries. The unaudited pro forma results
of operations set forth above do not purport to represent what
the combined results of operations actually would have been if
the acquisition of BSD and its subsidiaries had been consummated
on July 1, 1997 instead of December 7, 1998 or what the results
of operations would be for any future periods.
Additional audited and unaudited historical financial statements
of BSD and its subsidiaries, including information with respect
to the long-term obligations of BSD acquired by the Company, and
unaudited pro forma information combining the accounts of the
Company and BSD and its subsidiaries is included in the Company's
Current Report on Form 8-K for December 1998 that was previously
filed with the SEC on December 22, 1998. Accordingly, these
unaudited condensed consolidated financial statements should be
read in conjunction with the historical and pro forma financial
statements and the other information included in the Form 8-K.
* * *
-7-
<PAGE>
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 Operations
Six months ended December 31, 1998 vs. six months ended December 31, 1997
Consolidated revenues for the six months ended December 31, 1998
decreased $1,322,765 or approximately 25% from the six months ended December 31,
1997. This decrease is mainly attributable to (i) the sale of LPS Acquisition
Corp. ("LPS") to The American Group, Inc. resulting in no revenues from LPS for
the six month period ended December 31, 1998 versus $897,876 in revenues for the
six month period ended December 31, 1997, (ii) the sale of Apollo Pipe & Valve
("Apollo") effective June 1998 resulting in no revenues from Apollo for the six
month period ended December 31, 1998 versus $155,487 in revenues for the six
month period ended December 31, 1997, (iii) the sale of American Industrial
Management, Inc. ("AIM") effective June 1998 resulting in no revenues from AIM
for the six month period ended December 31, 1998 versus $382,303 in revenues for
the six month period ended December 31, 1997 and (iv) a decrease of
approximately $309,000 in revenues for Federal Supply due to an overall decrease
in the operations of Federal. These decreases were offset by the acquisition of
80% of BSD Healthcare effective December 1, 1998. This resulted in an increase
in revenue $530,808 from the month of December for the six month period ended
December 31, 1998 versus no revenues for the six month period ended December 31,
1997.
Gross profit margins as a percentage of revenues for the six months
ended December 31, 1998 increased approximately 8% to approximately 33% from
approximately 25% for the comparable six months ended December 31, 1997. The
Company's gross profit percentage has increased due to the sale of LPS and
Apollo which have historically had significantly lower gross profit margins than
the Company's remaining subsidiaries.
Operating expenses decreased approximately 12% for the six months ended
December 31, 1998 compared to the six months ended December 31, 1997 primarily
as a result of decreased professional fees and depreciation and amortization
expenses. SG&A on a consolidated basis increased approximately $91,648 (or 4%)
during the six months ended December 31, 1998 from the six months ended December
31, 1997 as a result of the addition of SG&A expenses attributable to BSD which
was not part of the consolidated group in the prior period. Other operating
expenses were non-cash items including depreciation and amortization and
professional fees of approximately $385,000 for the six months ended December
31, 1998 compared to approximately $867,000 for the six months ended December
31, 1997.
<PAGE>
The Company reported a net loss of $1,674,778 for the six months ended
December 31, 1998 as compared to a net loss of $1,955,139 for the six months
ended December 31, 1997. Approximately $1,405,000 of the net loss for the six
months ended December 31, 1998 is attributable to non-cash items including (i)
depreciation and amortization of approximately $193,000, (ii) approximately
$132,000 of costs associated with professional fees, (iii) approximately
$437,000 of costs associated with issuance of stock with respect to employment
agreements, (iv) approximately $298,000 of costs associated with settlement of
certain outstanding claims through the issuance of stock and (v) approximately
$345,000 of cost associated with the issuance of stock to certain consultants.
Three months ended December 31, 1998 vs. three months ended December 31, 1997
Consolidated revenues for the three months ended December 31, 1998 decreased
$584,822 or approximately 21% from the three months ended December 31, 1997.
This decrease is mainly attributable to (i) the sale of LPS Acquisition Corp.
("LPS") to The American Group, Inc. resulting in no revenues from LPS for the
three month period ended December 31, 1998 versus $626,223 in revenues for the
three month period ended December 31, 1997, (ii) the sale of Apollo Pipe & Valve
("Apollo") effective June 1998 resulting in no revenues from Apollo for the
three month period ended December 31, 1998 versus $114,427 in revenues for the
three month period ended December 31, 1997 and (iii) the sale of American
Industrial Management, Inc. ("AIM") effective June 1998 resulting in no revenues
from AIM for the three month period ended December 31, 1998 versus $248,983 in
revenues for the three month period ended December 31, 1997. These decreases
were offset by the acquisition of BSD Healthcare effective December 1, 1998.
This resulted in revenues of $530,808 for one month for the three month period
ended December 31, 1998 versus no revenues for the three month period ended
December 31, 1997.
Gross profit margins as a percentage of revenues for the three months
ended December 31, 1998 increased approximately 14% to approximately 37% from
approximately 23% for the comparable three months ended December 31, 1997. The
Company's gross profit percentage has increased due to the sale of LPS and
Apollo which have historically had significantly lower gross profit margins than
the Company's remaining subsidiaries.
Operating expenses decreased approximately 6% for the three months ended
December 31, 1998 compared to the three months ended December 31, 1997 primarily
as a result of decreased professional fees. SG&A on a consolidated basis
increased approximately $330,838 (or 21%) during the three months ended December
31, 1998 from the three months ended December 31, 1997 as a result of the
addition of SG&A expenses attributable to BSD which was not part of the
consolidated group in the prior period. Other operating expenses were non-cash
items including depreciation and amortization and professional fees of
approximately $260,000 for the three months ended December 31, 1998 compared to
approximately $737,000 for the three months ended December 31, 1997.
The Company reported a net loss of $1,460,579 for the three months
ended December 31, 1998 as compared to a net loss of $1,758,564 for the three
months ended December 31, 1997.
<PAGE>
Liquidity and Capital Resources
The Company's working capital at December 31, 1998 was $1,163,172
compared to $134,059 at June 30, 1998. The increase in working capital is
primarily attributable to an increase in accounts receivable resulting from the
BSD acquisition. 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 $145,062 of cash for operating activities for the six months ended
December 31, 1998, $28,845 for investing activities and received approximately
$153,292 from financing activities, primarily from increased short term debt.
The Company will be required to raise additional working capital to fund its
plan of operations for the balance of fiscal 1999.
In January 1998 the Company completed a private placement of 5%
Convertible Preferred Stock, resulting in gross proceeds of $1,250,000. The
Company filed a proxy statement for a special meeting of shareholders at which
the conversion terms of additional shares of 5% Convertible Preferred Stock
would be submitted for approval by the Company's shareholders; however, no
meeting date was set. In February 1999, the Company and the holder of the
Preferred Stock entered into an agreement pursuant to which the Preferred Stock
will be exchanged for (i) $600,000 in cash, (ii) convertible notes aggregating
$819,000 with fixed conversion prices (iii) a nonconvertible note for $81,000
(iv) 250,000 shares of Common Stock and (v) the cancellation of outstanding
warrants. As of February 16, 1999, the Company owed the holder approximately
$255,000 of dividends and penalties and the holder had the right to require the
Company to redeem the 1250 outstanding shares for $1300 per share. 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 from the private placement have been utilized and the
Company is engaged in a private placement of Common Stock and warrants to raise
additional funds to fund its plan of operations for the balance of fiscal 1999
and to pay the above-described payment. (The securities being offered have not
been registered under the Securities Act of 1933 and may not be offered or
resold in the United States absent registration or any applicable exemption from
the registration requirement).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
major 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 and Use of Proceeds.
During the three months ended December 31, 1998, the Company
issued an aggregate of 3,195,000 shares of Common Stock as follows: (i) 946,000
shares in the BSD acquisition, (ii) 665,000 shares to Lester Gann, president of
the Company's IFR subsidiary in connection with the amendment of his employment
agreement, (iii) 600,000 to Robert Hausman, the Company's president, upon
conversion of outstanding preferred stock, (iv) an aggregate of 545,000 shares
to, certain consultants for payment of accrued consulting fees and other
services (v) 305,000 shares to settle two outstanding claims against the
Company, (vi) 100,667 shares to pay legal fees and (vii) 33,333 as a severance
payment to an ex-officer of the Company. None of these shares were issued for
cash. All shares were issued in a transaction exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2).
Item 3. Defaults Upon Senior Securities.
As of December 31, 1998, the Company had a dividend arrearage of
$59,895 and accrued penalties of $150,000 for its 5% Convertible Preferred Stock
which increased to a dividend arrearage of $67,708 and accrued penalties of
$187,500, as of February 17, 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
See the Company's Current Report on Form 8-K filed December
22, 1998 for a description of the Exchange Agreement and related agreements,
modifications to employment agreements and the issuance of shares for payment of
consulting fees and other accrued expenses.
As previously disclosed, the Company received a letter from the Nasdaq SmallCap
Market indicating that the Company had until February 19, 1999 to regain
compliance with the continued listing standards. On February 17, 1999, the
Company requested a hearing, which stayed the delisting process. The Company
expects to be in compliance with the listing standards prior to the hearing
date.
In February 1999, the Company entered into a Settlement Agreement with M.
Shulman & Associates pursuant to which Shulman agreed to waive any future fees,
including those that may be due in connection with the completed BSD
transaction, in exchange for the Company transferring the 120,000 shares of the
American Group, Inc. owned by it and the assumption by the Company of $100,000
of Notes held by Robert Hausman, the Company's president.
<PAGE>
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
2.8 Exchange Agreement dated as of September 29, 1998 by and among
Coventry Industries, Inc. ("Coventry"), BSD Healthcare
Industries, Inc. ("BSD"), certain shareholders of BSD, People
First LLC ("PF")and the members of PF (the Exchange
Agreement")
4.2 Termination and Amendment Agreement dated December 9, 1998
between the Company and Barron Chase Securities, Inc.
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
10.9 Financial Advisory Agreement between Coventry Industries Corp.
and Barron Chase Securities, Inc. is hereby incorporated 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.
<PAGE>
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.
10.12 Intentionally deleted.
10.13 Amendment dated November 9, 1998 to Employment Agreement Dated
May 1, 1998 Between Industrial Fabrication and Repair,
Coventry Industries Corp, and Lester Gann is hereby
incorporated to the Current Report on Form 8-K filed December
22, 1999.
10.14 Amendment dated as of December 1, 1998 to Management Agreement
dated July 1, 1997 and amended November 1, 1997 between the
Company and Robert Hausman is hereby incorporated to the
Current Report on Form 8-K filed December 22, 1999.
10.15 Voting Agreement dated December 3, 1998 among Robert Hausman,
Lester Gann, Ronald Wilheim, Stephen Rosedale, Yucatan
Holdings,Connie Steinmetz, Strategic Capital Holdings, Inc.
and Arizona Development Corporation is hereby incorporated to
the Current Report on Form 8-K filed December 22, 1999.
10.16 Consulting Agreement between the Company and Connie Steinmetz
dated as of November 2, 1998 is hereby incorporated to the
Current Report on Form 8-K filed December 22, 1999.
10.17 Consulting Agreement between the Company and Strategic
Development dated as of November 9, 1998 is hereby
incorporated to the Current Report on Form 8-K filed December
22, 1999.
10.18 Exchange Agreement dated February 3, 1999 between the Company
and ProFutures Special Equities Fund, L.P.
10.19 Settlement Agreement dated February __, 1999 among the
Company, M. Shulman & Associates and Robert Hausman.
(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:
On December 22, 1998 the Company filed a Report on Form 8-K disclosing
its completion of the acquisition of 80% of BSD Healthcare pursuant to
the Exchange Agreement, and certain other matters.
<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: February __, 1999 By: /s/ Robert Hausman
-------------------
Robert Hausman,
President
<PAGE>
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (as it may be amended from time to time, the
"Agreement") made and entered on February 3, 1999, by and between ProFutures
Special Equities Fund, L.P. ("ProFutures") and Coventry Industries Corp. (the
"Company").
WHEREAS, the Company and ProFutures entered into a Subscription
Agreement dated January 16, 1998 and amended as of March 31, 1998 (the
"Subscription Agreement") pursuant to which ProFutures purchased 1,250 shares of
the Company's 5% Convertible Preferred Stock (the "Preferred Stock"); and
WHEREAS, the Company desires to redeem the Preferred Stock on the terms
set forth below.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, promises, and undertakings set forth herein, the parties agree as
follows:
1. Upon the closing of the private placement on the terms set forth on Exhibit A
hereto, the Company will deliver to ProFutures the following (the "Coventry
Deliveries"):
(a) A bank check or wire transfer in the amount of $600,000.
(b) Three 8% Convertible Promissory Notes in the aggregate principal
amount of $819,000 in the form of Exhibit B hereto, all of which are the same
except for the conversion prices of $.91, $1.36 and $1.36, respectively.
(c) An 8% Promissory Note in the amount of $81,000 in the form of
Exhibit C hereto.
(d) A certificate representing 250,000 shares of Company Common Stock
(or if after the planned 1-for-8 reverse split 31,250 shares).
(e) A Pledge and Security Agreement, in the form of Exhibit D hereto,
relating to the pledge by Stephen Rosedale and Ronald Wilheim of up to 2,000,000
shares (presplit) of the Company to secure the Notes (the "Pledged Shares").
(f) An Escrow and Control Agreement, in the form of Exhibit E hereto,
with respect to the Pledged Shares.
2. Simultaneously with the Coventry Deliveries, ProFutures will deliver to the
Company the following:
(a) Stock certificate representing the Preferred Stock, which shall be
retired by the Company.
(b) Option Agreement, in the form of Exhibit F hereto.
1
<PAGE>
(c) Executed copy of an amendment or joinder to the Company's existing
Voting Agreement.
(d) The Warrants to purchase 250,000 shares of the Company's Common
Stock held by ProFutures to be cancelled.
3. Effective upon the Coventry Delivery, the Subscription Agreement will be
terminated and, therefore, ProFutures will then waive only such claims that it
has to dividends and penalties payable under such Agreement and shares that may
be required to be issued under the Subscription Agreement.
4. Effective upon the receipt by ProFutures of $900,000 in cash representing the
repayment of the aggregate principal amount of the outstanding Notes described
in Section 1(b) and (c) above, and accrued interest on the Notes, ProFutures
will waive and hereby release and discharge the Company, and the Company will
waive and hereby release and discharge ProFutures, from any and all liability of
whatever kind or nature arising from any acts or omissions of either party,
known or unknown, asserted or unasserted, which occurred up to the date of this
Agreement, including but not limited to all liability for any acts that may have
violated their rights under any contract, tort, or other common law, or any
other duty or obligation of any kind; all liability, asserted or unasserted,
known or unknown, suspected or unsuspected, which was or may have been alleged
against or imputed to either party by the other party or anyone acting on its
behalf up to the date of this Agreement.
5. The Company hereby represents and warrants to ProFutures that, as of the date
hereof, each of the representations and warranties set forth in Section 2.2(a),
(b), (e) through (i) of the Subscription Agreement, incorporated herein as if
fully set forth, is true and correct, except that the Company has been notified
by the NASDAQ SmallCap Market that its common stock will be delisted on February
19, 1999 if the Company does not meet such Market's listing requirements by that
date.
6. If the Coventry Deliveries are not made by the earlier of: (a) 5:00 p.m.,
Austin, Texas time, February 28, 1999; or (b) suspension of trading or delisting
of the Company's Common Stock on the NASDAQ SmallCap Market, this Agreement
shall be null and void. In such event, ProFutures shall be free to pursue all
rights and remedies at law or in equity under the Subscription Agreement or
otherwise.
7. This Agreement constitutes the entire agreement between the parties in
relation to its subject matter, supersedes all prior agreements between the
parties, if any, concerning its subject matter, and may not be altered, amended,
modified, superseded, canceled, or terminated except by a writing duly executed
by the parties or their attorneys on their behalf.
8. If any of the provisions, terms, clauses, waivers, or releases of claims or
rights contained in this Agreement are declared illegal, unenforceable, or
ineffective in a legal forum of competent jurisdiction, then such provisions,
terms, clauses, waivers, or releases of claims or rights shall be deemed
severable, such that all other provisions, terms, clauses, waivers, and releases
of claims and rights contained in this Agreement shall remain valid and binding
upon the parties.
2
<PAGE>
9. This Agreement shall be governed by the laws of the State of Florida, without
reference to its principles governing conflicts of law.
The Company and ProFutures each hereby (i) irrevocably submits to the
jurisdiction of the United States District Court and other courts of the United
States sitting in the State of Texas for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement and (ii) waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. The Company and ProFutures each
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to its principal business address and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by law.
IN WITNESS WHEREOF, Coventry Industries Corp. and ProFutures Special
Equities Fund, L.P. have acknowledged and executed this Agreement as of the date
hereof.
COVENTRY INDUSTRIES CORP.
By: /s/ Robert Hausman
--------------------------------
Robert Hausman, President
PROFUTURES SPECIAL EQUITIES FUND, L.P.
By: ProFutures Fund Management, Inc., a General Partner
By: /s/ Gary D. Halbert
---------------------------------
Gary D. Halbert, President
3
<PAGE>
TERMINATION AND AMENDMENT AGREEMENT
AGREEMENT made and entered into on this 4th day of January, 1999, by
and among Shulman & Associates, Inc. ("Shulman"), Coventry Industries Corp. (the
"Company"), the American Group, Inc. ("American") and Robert Hausman
("Hausman").
WHEREAS, the Company and Shulman entered into a Consulting and
Acquisition Management Agreement dated as of April 3, 1997 and amended as of
June 1, 1997 and a Fee Agreement dated as of April 4, 1997 (the "Agreements");
and
WHEREAS, the parties desire to terminate the Agreement and provide for
a full release.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, promises, and undertakings set forth herein, as complete and full
satisfaction of the Agreements, the parties agree as follows:
1. Effective immediately, the Agreements are terminated and Shulman
waives all claims that it may have to any amounts that may be payable or rights
it may have under the Agreements.
2. Shulman waives and hereby releases and discharges the Company, and
the Company waives and hereby releases and discharges Shulman, from any and all
liability of whatever kind or nature arising from any acts or omissions of
either party, known or unknown, asserted or unasserted, which occurred up to the
date of this Agreement, including but not limited to all liability for any acts
that may have violated their rights under any contract, tort, or other common
law, or any other duty or obligation of any kind; all liability, asserted or
unasserted, known or unknown, suspected or unsuspected, which was or may have
been alleged against or imputed to either party by the other party or anyone
acting on its behalf up to the date of this Agreement.
3. Neither Shulman nor the Company shall in the future initiate or
cause to be initiated any judicial or administrative charge, complaint, action,
or proceeding relating to claims released under paragraph 2 of this Agreement
and that were or could have been raised against either party in any forum as of
the date of this Agreement. In the event that any such judicial or
administrative charge, complaint, action, or proceeding is presently pending, or
if in the future any such proceeding is commenced by either party or any person
or party acting on that party's behalf, the party with such notice shall
promptly notify the other party of the existence of that proceeding, withdraw
it, with prejudice, to the extent that party has the power to do so, and except
to the extent required or compelled by law, legal process, or subpoena, shall
refrain from participating, testifying or producing documents or information
therein.
4. As consideration for this release, the Company shall assign and
transfer to Shulman 120,000 (post-split) shares of stock of American owned by
it. In addition, upon execution of this Agreement, Hausman hereby assigns to
Shulman notes aggregating $100,000 issued by American to Hausman. Promptly after
execution of this Agreement, the Company agrees to issue to Hausman a note for
$100,000 containing substantially similar terms to the notes assigned to Shulman
by Hausman.
1
<PAGE>
5. This Agreement constitutes the entire agreement between the parties
in relation to its subject matter, supersedes all prior agreements between the
parties, if any, concerning its subject matter, and may not be altered, amended,
modified, superseded, canceled, or terminated except by a writing duly executed
by the parties or their attorneys on their behalf.
6. If any of the provisions, terms, clauses, waivers, or releases of
claims or rights contained in this Agreement are declared illegal,
unenforceable, or ineffective in a legal forum of competent jurisdiction, then
such provisions, terms, clauses, waivers, or releases of claims or rights shall
be deemed severable, such that all other provisions, terms, clauses, waivers,
and releases of claims and rights contained in this Agreement shall remain valid
and binding upon the parties.
7. This Agreement shall be governed by the laws of the State of
Florida.
IN WITNESS WHEREOF, Coventry Industries Corp. and Shulman & Associates,
The American Group, Inc. and Robert Hausman have acknowledged and executed this
Agreement as of the date hereof.
COVENTRY INDUSTRIES CORP.
By: /s/ Robert Hausman
-----------------------------------
Robert Hausman, President
SHULMAN AND ASSOCIATES, INC.
By: /s/ Manny Shulman
-----------------------------------
Manny Shulman, President
THE AMERICAN GROUP, INC.
By: /s/ Timothy S. Hart
-----------------------------------
Timothy S. Hart
Title: President, Financial Officer
/s/ Robert Hausman
-----------------------------------
Robert Hausman
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORKFORCE COVENTRY INDUSTRIES CORP FOR THE SIX MONTHS
ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 31,573
<SECURITIES> 0
<RECEIVABLES> 3,006,815
<ALLOWANCES> 50,000
<INVENTORY> 1,008,138
<CURRENT-ASSETS> 4,208,483
<PP&E> 3,480,789
<DEPRECIATION> 714,264
<TOTAL-ASSETS> 9,941,244
<CURRENT-LIABILITIES> 3,045,311
<BONDS> 0
0
86
<COMMON> 6,300
<OTHER-SE> 5,004,301
<TOTAL-LIABILITY-AND-EQUITY> 9,941,244
<SALES> 3,873,589
<TOTAL-REVENUES> 3,873,589
<CGS> 2,581,906
<TOTAL-COSTS> 2,581,906
<OTHER-EXPENSES> 2,801,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,932
<INCOME-PRETAX> (1,605,028)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,605,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,605,028)
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
