<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 March 31, 1999
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 33-53250-A
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)
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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 April 30, 1998 the
registrant had issued and outstanding 1,090,548 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
MARCH 31, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
March June
ASSETS 31, 1999 30, 1998
------------ ------------
(Unaudited) (See Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 492,464 $ 52,188
Accounts receivable, net of allowance for doubtful accounts
of $80,986 and $50,000 1,989,278 1,196,993
Inventory 945,305 1,071,140
Other current assets 272,583 198,255
------------ ------------
Total current assets 3,699,630 2,518,576
Property, plant and equipment, net of accumulated depreciation 2,705,200 2,762,667
Goodwill, net of accumulated amortization 2,284,266 1,391,724
Other assets 672,528 702,153
------------ ------------
Totals $ 9,361,624 $ 7,375,120
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,523,121 $ 1,574,136
Current portion of long-term debt 285,321 322,655
8% convertible and nonconvertible notes payable 900,000
Note payable to former stockholder 175,000 151,824
Noninterest bearing demand note payable to stockholder 382,000
Other short-term notes payable 496,544 335,902
------------ ------------
Total current liabilities 3,761,986 2,384,517
Long-term debt, net of current portion 1,650,202 395,325
Minority interest 63,537
------------ ------------
Total liabilities 5,475,725 2,779,842
------------ ------------
Stockholders' equity:
Series A preferred stock, $.008 par value; 4 shares authorized,
issued and outstanding -- --
Series C preferred stock, $.008 par value; 3,750 shares
authorized; 3,750 shares issued and outstanding (1998) -- 30
Series E preferred stock, $.008 par value; 14,375 shares
authorized; 6,875 and 14,375 shares issued and outstanding 55 115
5% convertible preferred stock, $.008 par value; 313 shares
authorized; 156 shares issued and outstanding (1998) -- 1
Common stock, $.008 par value; 3,125,000 shares authorized;
1,090,548 and 379,100 shares issued and outstanding 8,724 3,033
Additional paid-in capital 22,780,418 21,398,987
Unearned compensation and advertising fees (2,211,292) (2,311,292)
Accumulated deficit (16,692,006) (14,495,596)
------------ ------------
Total stockholders' equity 3,885,899 4,595,278
------------ ------------
Totals $ 9,361,624 $ 7,375,120
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-1-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended March 31, Ended March 31,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 6,413,195 $ 5,763,172 $ 2,008,798 $ 1,620,181
Cost of revenues 4,463,353 4,039,087 1,575,609 1,233,829
----------- ----------- ----------- -----------
Gross profit 1,949,842 1,724,085 433,189 386,352
----------- ----------- ----------- -----------
Selling, general and administrative
expenses 3,333,120 1,571,222 698,826 101,346
Professional fees 239,413 747,471 47,176 100,000
Depreciation and amortization 309,055 261,412 116,388 42,238
----------- ----------- ----------- -----------
Totals 3,881,588 2,580,105 862,390 243,584
----------- ----------- ----------- -----------
Operating income (loss) (1,931,746) (856,020) (429,201) 142,768
----------- ----------- ----------- -----------
Other income (expense):
Interest (235,127) (86,891) (132,644) (9,555)
Income applicable to minority
interest 59,463 59,463
Other 6,847 520
----------- ----------- ----------- -----------
Totals (175,664) (80,044) (73,181) (9,035)
----------- ----------- ----------- -----------
Income (loss) from continuing
operations (2,107,410) (936,064) (502,382) 133,733
Loss from discontinued operations (1,166,361) (781,019)
----------- ----------- ----------- -----------
Net loss (2,107,410) (2,102,425) (502,382) (647,286)
Dividends on preferred stock 89,000 19,250
----------- ----------- ----------- -----------
Net loss applicable to common stock $(2,196,410) $(2,102,425) $ (521,632) $ (647,286)
=========== =========== =========== ===========
Basic loss per common share:
Basic income (loss) from continuing
operations $ (3.63) $ (3.31) $ (.59) $ .38
Loss from discontinued operations (4.12) (2.21)
----------- ----------- ----------- -----------
Net loss per common share $ (3.63) $ (7.43) $ (.59) $ (1.83)
=========== =========== =========== ===========
Weighted average common shares
outstanding 604,952 283,035 886,564 353,564
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-2-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1999
(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> <C>
Balance, July 1, 1998 4 $ - 3,750 $30 14,375 $115 156 $1
Common stock issued
for:
Purchase business
combination
Conversion of Series
E preferred stock (7,500) (60)
Professional and
other services, em-
ployee compensa-
tion and other ex-
penses
Common stock and
warrants sold
through private
placement
Repurchase of preferred
stock (3,750) (30) (156) (1)
Dividends declared
Net loss
----- ---- -------- ----- ------- ------ ------ -----
Balance, March 31,
1999 4 $ - - $ - 6,875 $ 55 - $-
===== ==== ======== ===== ======= ====== ====== =====
Unearned
Compensa-
Additional tion and
Common Stock Paid-in Advertising Accumulated
Shares Amount Capital Fees Deficit Total
------ ------ ------- ---- ------- -----
Balance, July 1, 1998 379,100 $3,033 $21,398,987 $(2,311,292) $(14,495,596) $4,595,278
Common stock issued
for:
Purchase business
combination 118,250 946 876,804 877,750
Conversion of Series
E preferred stock 75,000 600 (540)
Professional and
other services, em-
ployee compensa-
tion and other ex-
penses 236,948 1,895 1,322,316 100,000 1,424,211
Common stock and
warrants sold
through private
placement 250,000 2,000 822,981 824,981
Repurchase of preferred
stock 31,250 250 (1,640,130) (1,639,911)
Dividends declared (89,000) (89,000)
Net loss (2,107,410) (2,107,410)
--------- ------ ----------- ---------- ------------ ----------
Balance, March 31,
1999 1,090,548 $8,724 $22,780,418 $(2,211,292) $(16,692,006) $3,885,899
========= ====== =========== =========== ============ ==========
</TABLE>
* See Notes to Consolidated Financial Statements.
-3-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(2,107,410) $(2,102,425)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 203,296 186,967
Amortization 105,759 74,445
Common stock issued for services, compensation and
other expenses 1,424,211 191,904
Reserve for bad debts 30,986
Income applicable to minority interest 59,463
Changes in operating assets and liabilities, net of effects of
purchased businesses:
Accounts receivable 1,030,472 (108,552)
Inventory 160,282 114,169
Other current assets (53,799) (238,010)
Other assets 34,007 (111,252)
Accounts payable and accrued expenses (456,003) 637,469
----------- -----------
Net cash provided by (used in) operating activities 431,264 (1,355,285)
----------- -----------
Investing activities:
Purchase of property and equipment (34,184) (114,620)
Purchases of businesses, net of cash received (2,636) (11,154)
----------- -----------
Net cash used in investing activities (36,820) (125,774)
----------- -----------
Financing activities:
Net repayments of short-term borrowings (163,611) (290,866)
Proceeds from note payable to stockholder 302,000
Payments on note payable to stockholder (20,000)
Repayments of long-term borrowings (282,457)
Cash paid in connection with redemption of preferred
stock (614,991)
Issuance of common stock and warrants 824,891 1,452,636
----------- -----------
Net cash provided by financing activities 45,832 1,161,770
----------- -----------
Increase (decrease) in cash and cash equivalents 440,276 (319,289)
Cash and cash equivalents, beginning of period 52,188 335,321
----------- -----------
Cash and cash equivalents, end of period $ 492,464 $ 16,032
=========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 235,127 $ 131,913
=========== ===========
</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
March 31, 1999 and its results of operations for the nine and
three months ended March 31, 1999 and 1998, changes in
stockholders' equity for the nine months ended March 31, 1999
and cash flows for the nine months ended March 31, 1999 and
1998. 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"). Pursuant to rules and regulations of the
SEC, certain information and disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
from these consolidated financial statements unless significant
changes have taken place since the end of the most recent fiscal
year. 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 nine and three
months ended March 31, 1999 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 nine and three months ended March 31, 1999 and
1998 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.
On March 22, 1999, the Company effected a 1-for-8 reverse split
of its common stock. All preferred and common share and per
share amounts (including the par value of each class of capital
stock) in the accompanying unaudited condensed consolidated
financial statements and these notes have been adjusted for the
effects of the reverse split.
-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 118,250 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 118,250 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)
Line of credit and 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 continuing
operations for the nine months ended March 31, 1999 and 1998 as
though the acquisition of BSD and its subsidiaries had been
consummated on July 1, 1997:
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 7,954,940 $ 8,538,313
Cost of revenues 5,650,318 6,175,624
------------ ------------
Gross profit 2,304,622 2,362,689
Other expenses 4,785,547 3,971,080
------------ ------------
Loss from continuing operations (2,480,925) (1,608,391)
Dividends on preferred stock 89,000
------------ ------------
Loss from continuing operations
applicable to common stock $(2,569,925) $(1,608,391)
=========== ===========
Basic loss from continuing operations
per common share $(3.83) $(4.01)
======= =======
Weighted average common
shares outstanding 671,657 401,285
======= =======
</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 short-term and 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
(the "Form 8-K) 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>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Private placement:
On March 10, 1999, the Company completed the sale, through a
private placement, of 1,000,000 units at $1.00 per unit whereby
it issued 250,000 shares of common stock, 1,000,000 Class A
warrants and 1,000,000 Class B warrants and received net proceeds
of $894,981. Each Class A and each Class B warrant will enable
the holder to purchase one share of common stock at $1.50 and
$1.75 per share, respectively, during the three year period from
the date of issuance.
Note 5 - Redemption of preferred stock:
On March 10, 1999, the Company redeemed all of the 1,250 shares
of 5% convertible preferred stock then outstanding in exchange
for total consideration with a fair value of $1,625,000 comprised
of (i) cash payments of $600,000, (ii) the issuance of 8%
convertible notes in the principal amount of $819,000 and an 8%
nonconvertible note payable in the principal amount of $81,000
(see Note 6) and (iii) the issuance of a total of 31,250 shares
of common stock with a fair value of $125,000 (or $4.00 per
share). As of the date of the redemption, the Company was
obligated to make cash payments of $1,625,000 to redeem the
shares at the option of the holder. The Company also incurred
costs of $14,911 in connection with the exchange. The issuances
of notes and common stock in connection with the redemption of
the preferred stock were noncash transactions and, accordingly,
they are not reflected in the accompanying 1999 condensed
consolidated statement of cash flows. Accounts payable and
accrued expenses as of March 31, 1999 include $255,000 for the
payment of dividends and penalties accrued prior to the
redemption of the 5% convertible preferred stock.
Note 6 - 8% convertible and nonconvertible notes payable:
The 8% convertible and nonconvertible notes (collectively, the
"8% Notes") are payable at any time upon demand by the holders.
The Company may not repay the notes prior to February 15, 2000
other than upon demand by a holder. The convertible notes become
convertible into shares of common stock on April 1, 2000 as
follows: (i) notes in the principal amount of $273,000 can be
converted at $.91 per share into a total of 300,000 common
shares; and (ii) notes in the principal amount of $546,000 can be
converted at $1.36 per share into a total of 401,471 common
shares.
-8-
<PAGE>
COVENTRY INDUSTRIES CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Discontinued operations:
As further explained in Note 3 of the notes to the Company's
Audited Financial Statements, (i) on June 29, 1998, the Company
completed the sale of all of the stock of LPS Acquisition Corp.
("LPS"), a distributor of high quality custom soil mixes to
wholesale nurseries, which had been acquired in September 1997,
and (ii) on March 31, 1998, the Company sold all of the
outstanding shares of common stock of American Industrial
Management, Inc. ("AIM"), a provider of industrial personnel for
light manufacturing and assembly line operations, which had been
acquired in February 1996. Accordingly, the results of operations
of LPS and AIM have been reflected in the accompanying condensed
consolidated statements of operations as discontinued operations.
Note 8 - Income taxes:
As of June 30, 1998, the Company had net operating loss
carryforwards of approximately $11,300,000 available to reduce
future Federal taxable income which, if not used, will expire at
various dates through 2015 (see Note 13 in the Company's Audited
Financial Statements). As a result of uncertainties related to
the extent and timing of the Company's future taxable income, the
Company has established valuation allowances equal to the
potential benefits from such net operating loss carryforwards and
the additional amounts arising from the loss incurred for the
nine months ended December 31, 1998. Accordingly, the
accompanying condensed consolidated statements of operations do
not include income tax credits for any of the periods presented.
-9-
<PAGE>
Item 2. Management's Discussion of Financial Condition and Results
Of Operations.
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of Private
Securities Litigation Reform Act 1995. Such statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward looking statements. The Company does not have a policy of updating
or revising forward-looking statements and thus it should not be assumed that
silence by management of the Company over time means that actual events are
bearing out as estimated in such forward looking statements.
The report of the Company's independent auditors for the fiscal year
ended June 30, 1998 included an explanatory paragraph that there is a
substantial doubt about the Company's ability to continue as a going concern
unless it can improve its results of operations or obtain additional financing.
Since that time, the Company has raised additional capital, reduced expenses,
paid some liabilities with common stock and has acquired BSD, which is a
profitable operation. BSD has experienced pricing pressures in the most recent
quarter due to changes in reimbursement rates. The Company has taken steps to
adjust its expenses and expects by the fourth quarter of fiscal 1999 to have
regained its prior operating margins.
Results of Operations
Nine months ended March 31, 1999 as compared to nine months ended March 31, 1998
Consolidated revenues for the nine months ended March 31, 1999
increased $650,023 or approximately 11% from the nine months ended March 31,
1998. This increase was primarily the result of the acquisition of 80.1% of BSD
Healthcare ("BSD") effective December 1, 1998. This resulted in an increase in
revenue of $1,455,855 from the nine month period ended March 31, 1999 versus no
revenue for the nine month period ended March 31, 1998. This increase was offset
by (i) a decrease of approximately $484,000 in revenues from Federal Supply due
to an overall decrease in operations of Federal and (ii) a general decrease of
approximately $853,000 in the Company's other operating entities.
Gross profit margins as a percentage of revenues for the nine months
ended March 31, 1999 were flat from the comparable nine months in fiscal 1998.
The Company's gross profit percentage remained the same from prior quarters due
to the fact that the profit margins for BSD have been negatively impacted by the
changes in reimbursement rates in the most recent quarter since the acquisition
was completed.
<PAGE>
Operating expenses increased approximately $1,301,000 or 50% for the
nine months ended March 31, 1999 as compared to the comparable period ended
March 31,1998. The major component of this increase was in selling, general, and
administrative expenses, which increased by approximately $1,762,000. This
increase was primarily the result of costs associated with the BSD acquisition
and related expenses incurred in integrating these operations with the Company's
structure. The increase in selling, general, and administrative expenses was
offset by a decrease in professional fees of approximately $508,000, the
majority of which was paid through the issuance of common stock during the nine
months ended March 31, 1998. Other operating expenses were non cash items
including (i) depreciation and amortization of approximately $309,000, (ii)
professional fees related to the BSD acquisition and further expansion of the
Company's operations of approximately $239,000, (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.
Interest expense increased approximately $148,000 during the nine
months ended March 31, 1999 as compared to the nine months ended March 31, 1998
primarily as a result of the increased debt attributable to BSD.
On June 29, 1998, the Company completed the sale of all of the stock of
LPS Acquisition Corp. ("LPS"), a distributor of high quality custom soil mixes
to wholesale nurseries, which had been acquired in September 1997. On March 31,
1998, the Company sold all of the assets of American Industrial Management, Inc.
("AIM"), a provider of industrial personnel for light manufacturing and assembly
line operations, which had been acquired in February 1996. Accordingly, the
Company recorded a loss from discontinued operations of approximately $1,166,000
during the nine months ended March 31, 1998. As a result of all of the above,
the Company recognized a net loss of approximately $2,196,000 for the nine
months ended March 31, 1999 as compared to a net loss of approximately
$2,102,000 for the comparable period ended March 31, 1998.
Three months ended March 31, 1999 as compared to three months ended March 31,
1998
Consolidated revenues for the three months ended March 31, 1999
increased $388,617 or approximately 24% from the three months ended March 31,
1998. This increase is attributable to a full quarter of revenues from BSD of
approximately $925,000 versus no revenues in the three months ended March 31,
1998. This increase was offset by (i) a decrease of approximately $175,000 in
revenues for Federal Supply due to an overall decrease in the operations at
Federal and (ii) a general decrease of approximately $361,000 in the Company's
other operating entities.
Gross profit margins as a percentage of revenues for the three months
ended March 31, 1999 decreased to approximately 22% from approximately 24% for
the comparable quarter in fiscal 1998. The decrease in the gross profit margin
was primarily attributable to costs incurred by BSD in adapting to the new
government Prospective Pay System for reimbursements.
<PAGE>
Operating expenses increased approximately $619,000 or 254% for the
three months ended March 31, 1999 as compared to the comparable period ended
March 31, 1998. The major component of this increase was the increase in
selling, general and administrative expenses, which increased by $597,000. This
was primarily the result of the acquisition of BSD and the cost of integrating
these operations with the Company's structure.
Interest expense increased approximately $123,000 during the three
months ended March 31, 1999 as compared to the three months ended March 31,
1998. This was primarily the result of the increased debt attributable to BSD.
In addition, during the three months ended March 31, 1998, the Company
recognized a loss from discontinued operations of approximately $781,000 related
to the sale of LPS and AIM.
As a result of all of the above, the Company recognized a net loss of
approximately $522,000 for the three months ended March 31, 1999 as compared to
a net loss of approximately $647,000 for the comparable period ending March 31,
1998.
Liquidity and Capital Resources
The Company's working capital at March 31, 1999 decreased to a
deficiency of approximately $62,000 from approximately $ 134,059 at June 30,
1998. The decrease in working capital was attributable to funding its loss for
the nine month period ending March 31, 1999. While the Company does not
presently anticipate requiring any significant capital in order to pursue the
Company's plan of operations for the remainder of fiscal 1999, consisting of its
normal business operations, it will be necessary for the Company to raise
additional working capital or to take other action to help its working capital
situation during the next twelve months.
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
was exchanged in March 1999 for (i) $600,000 in cash, (ii) convertible notes
aggregating $819,000 with fixed conversion prices (iii) a non convertible note
for $81,000(iv) 31,250 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 1,250 outstanding shares for $1,300 per
share.
In March 1999, the Company completed 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 Company
issued 250,000 shares of Common Stock, 1,000,000 Class A Warrants, and 1,000,000
Class B Warrants The Company received gross proceeds of $1,000,000. The funds
received from the private placement have been utilized.
<PAGE>
Additionally, a portion (approximately $2,000,000) 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 is in the process of implementing and executing a Year 2000
assessment with the objective of having all of its significant business systems
functioning properly with respect to the Year 2000 issue before January 1, 2000.
The Company believes that all of its internal systems are currently 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.
As part of this assessment, significant service providers, vendors,
suppliers, and customers believed to be critical to business operations after
January 1, 2000, have been identified and steps are being taken to reasonably
ascertain their stage of Year 2000 readiness through questionnaires, interviews,
on-site visits, and other available means. At this time, the Company believes
its significant service providers, vendors, suppliers, and customers' readiness
issues will not materially affect the Company. The Company will finish its
assessment by September 30, 1999 and will develop a contingency plan at such
time if circumstances warrant. The Company believes that a contingency plan may
require it to purchase additional raw materials prior to the end of 1999 in case
of supply disruption for its manufacturing businesses. The Company's healthcare
businesses are primarily service-oriented and any disruption to this business is
likely to be from delays in reimbursement if governments, insurance companies
and managed care organizations have any type of problems that cause delays. 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.
Based on management's assessment of the cost of addressing Year 2000
compliance issues, such cost is not currently expected to have a material
adverse impact on the Company's financial position. The total cost of the
project is estimated at under $50,000. The estimated cost of the project and the
date on which the Company believes it will complete the Year 2000 modifications
and testing processes are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no assurance that these estimates will be
achieved, and actual results could differ materially from those anticipated.
Failure to complete the Year 2000 project by the year 2000 could have a material
adverse affect on future operating results and financial condition of the
Company.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
During the three months ended March 31, 1999, the Company
issued an aggregate of 281,250 shares of common stock as follows:
(i) 31,250 shares in connection with redemption of the ProFutures
Special Equities LLP 5% convertible preferred stock, and (ii)
250,000 shares of common stock in connection with a private
placement completed in March 1999 with four investors through D.L.
Cromwell, acting as placement agent. Both transactions were exempt
transactions pursuant to Section 4(2) of the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On March 22, 1999, the Company effected a 1-for-8 stock
split of its Common Stock.
On May 10, 1999, Coventry Industries Corp. announced that
effective on the close of business on May 7, 1999 that its common
stock was delisted from the Nasdaq SmallCap Market and will begin
trading on the OTC Bulletin Board. The Company received notification
on May 7, 1999 that it had lost its hearing before the Nasdaq
Listing Qualification Panel.
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
None.
(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:
None.
<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: May __, 1999 By: /s/ Robert Hausman
---------------------------
Robert Hausman,President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COVENTRY INDUSTRIES CORP FOR THE NINE MONTHS ENDED MARCH
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 492,464
<SECURITIES> 0
<RECEIVABLES> 2,070,264
<ALLOWANCES> 80,986
<INVENTORY> 945,305
<CURRENT-ASSETS> 272,583
<PP&E> 3,481,313
<DEPRECIATION> 776,113
<TOTAL-ASSETS> 9,361,624
<CURRENT-LIABILITIES> 3,761,986
<BONDS> 0
0
55
<COMMON> 8,724
<OTHER-SE> 3,877,120
<TOTAL-LIABILITY-AND-EQUITY> 9,361,624
<SALES> 0
<TOTAL-REVENUES> 6,413,195
<CGS> 4,463,353
<TOTAL-COSTS> 4,463,353
<OTHER-EXPENSES> 3,881,588
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235,127
<INCOME-PRETAX> (2,107,410)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,107,410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (89,000)
<NET-INCOME> (2,196,410)
<EPS-PRIMARY> (3.63)
<EPS-DILUTED> (3.63)
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