SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 33-53250-A
Coventry Industries Corp.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Florida
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
65-0353816
---------------------------------
(IRS Employer Identification No.)
7777 Glades Road, Suite 211, Boca Raton, FL 33434
---------------------------------------------------
(Address of principal executive offices)
561-488-4802
---------------------------
(Issuer's telephone number)
Workforce Systems Corp.
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (x) No ( ).
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of November 5, 1997 the
registrant had issued and outstanding 2,309,708 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Condensed Consolidated Balance Sheets at
September 30, 1997(unaudited) and
June 30, 1997 (audited) 2
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1997
and 1996 (unaudited) 3
Condensed Consolidated Statements of Cash Flow for
the three months ended September 30, 1997
and 1996 (unaudited) 4
Notes to the Condensed Consolidated Financial
Statements (Unaudited) 5 - 7
1
Coventry Industries Corp.
Condensed Consolidated Balance Sheets
September 30, June 30,
1997 1997
------------ ------------
(unaudited) *
Assets
- ------
Current Assets
Cash $ 201,877 $ 335,321
Accounts receivable, less $48,300 and $55,442
allowance for doubtful accounts, respectively 1,676,539 1,017,949
Other receivable 284,998 47,678
Inventory 2,071,512 1,888,235
Prepaid expenses 761,682 707,238
------------ ------------
Total current assets 4,996,608 3,996,421
------------ ------------
Property, plant and equipment, less $377,866 and
$324,062 accumulated depreciation, respectively 3,042,639 2,914,731
------------ ------------
Other assets
Excess cost over fair value of assets acquired 3,117,951 2,198,441
Other 35,598 28,330
Prepaid consulting fees 495,832 531,249
------------ ------------
3,649,381 2,758,020
------------ ------------
$ 11,688,628 $ 9,669,172
============ ============
Continued
Coventry Industries Corp.
Condensed Consolidated Balance Sheets (Continued)
September 30, June 30,
1997 1997
------------ ------------
(unaudited) *
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts payable $ 836,885 $ 915,630
Accrued expenses 418,011 428,026
Factoring line of credit 350,769 398,858
Income tax payable 59,030 59,030
Current maturities of long-term debt 201,975 234,447
Notes payable -- 142,731
------------ ------------
Total current liabilities 1,866,670 2,178,722
------------ ------------
Deferred income taxes 130,000 130,000
Long-term debt, less current portion 555,923 575,116
Notes payable 762,308 1,150,019
------------ ------------
1,448,231 1,855,135
------------ ------------
Stockholders' 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 E Preferred stock, $.001 par value, 115,000 shares
authorized, 115,000 shares issued and outstanding 115 --
Series F Preferred stock, $.001 par value, 75,000 shares
authorized, 75,000 shares issued and outstanding 75 --
Common Stock, $.001 par value, 25,000,000 shares
authorized, 2,524,934 and 1,952,934 shares issued and
outstanding, respectively 2,525 1,953
Additional paid-in capital 15,401,925 12,567,700
Stock to be earned (1,316,667) (1,416,667)
Accumulated deficit (5,714,276) (5,517,701)
------------ ------------
Total stockholders' equity 8,373,727 5,635,315
------------ ------------
$ 11,688,628 $ 9,669,172
============ ============
Condensed from audited financial statements
See accompanying notes to condensed consolidated financial statements
2
Coventry Industries Corp.
Condensed Consolidated Statements of Operations
Three Months Ended
September 30,
--------------------------
1997 1996
----------- -----------
Revenues $ 2,353,538 $ 1,157,371
Cost of sales 1,696,083 673,797
----------- -----------
Gross profit 657,455 483,574
----------- -----------
Operating expenses
Selling, general and administrative expenses 716,122 154,969
Depreciation and amortization 82,554 67,500
Professional fees 47,471 --
----------- -----------
846,147 222,469
----------- -----------
Income (loss) from operations (188,692) 261,105
----------- -----------
Other expense
Interest expense (35,215) --
Interest income 340 --
Other 26,992 --
----------- -----------
(7,883) --
----------- -----------
Income (loss) before income tax provision (benefit) (196,575) 261,105
Income tax (benefit) -- 87,500
----------- -----------
Net income (loss) $ (196,575) $ 173,605
=========== ===========
Earnings per common share:
Net income (loss) per common share $ (0.09) $ 0.29
=========== ===========
Weighted average shares outstanding 2,171,021 602,709
=========== ===========
See accompanying notes to condensed consolidated financial statements
3
Coventry Industries Corp.
Condensed Consolidated Statements of Cash Flows
Three Months Ended
September 30,
--------------------------
1997 1996
------------ ----------
Operating Activities:
Net income (loss) $(196,575) $ 173,605
Adjustments to reconcile net income to
net cash used in by operating activities:
Amortization and depreciation 82,554 67,500
Stock compensation 35,417 --
Changes in operating assets and liabilities:
(Increase) decrease in receivable (233,477) (16,641)
(Increase) decrease in other receivable (163,539) --
(Increase) decrease in inventory (15,277) (345,927)
(Increase) decrease in other assets (7,268) --
(Increase) decrease in prepaid expenses (54,444) 37,284
Increase (decrease) in income tax payable -- 57,997
Increase (decrease) in accounts payable (173,848) (52,539)
Increase (decrease) in accrued expenses (10,107) (41,136)
--------- ---------
Net cash used in operations (736,564) (119,857)
--------- ---------
Investing Activities:
Increase in start up costs -- (201,469)
Purchase of property and equipment (103,712) (256,727)
Purchase of assets of a business, net (30,993) --
--------- ---------
Net cash used in investing activities (134,705) (458,196)
--------- ---------
Financing Activities:
Payments of long-term debt (53,741) (26,698)
Payments (increase) of notes payable 123,805 (132,667)
Issuance of common stock 667,762 --
--------- ---------
Net cash provided by (used in) financing activities 737,826 (159,365)
--------- ---------
Net increase (decrease) in cash (133,443) (737,418)
Cash, beginning of the period 335,321 938,487
--------- ---------
Cash, end of the period $ 201,878 $ 201,069
========= =========
See accompanying notes to condensed consolidated financial statements
4
COVENTRY INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction of Form 10-QSB and
Article 310 of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The preparation requires management to make
estimates and assumptions that affect the reported of amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results may differ from these estimates. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 1998.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended June 30, 1997 as filed with the Securities and Exchange
Commission.
Note 2 - Acquisitions
On September 22, 1997, the Company acquired 100% of the issued and
outstanding capital stock of LPS Acquisition Corp. ("LPS") in exchange for an
aggregate of 270,000 shares of the Company's common stock from LPS' stockholders
in a private transaction exempt from registration under the Securities Act of
1933, as amended. LPS, doing business as Lantana Peat and Soil, is a distributor
of high quality custom soil mixes to wholesale nurseries throughout South
Florida. Annualized revenues are currently estimated at $3 million.
The calculation of the consideration paid by the Company in the
acquisition of LPS was based upon a percentage of the revenue base of LPS of
approximately $3 million on an annualized basis. Pursuant to the terms of the
agreement for the acquisition of LPS, the sellers are required to deliver to the
5
Company a fairness opinion as to the amount of consideration tendered by the
Company in the share for share exchange. In the event such fairness opinion does
not support the exchange ratio, such exchange ratio shall be adjusted by mutual
agreement between the parties.
* The transaction was recorded as follows:
* Fair value of assets acquired $ 577,000
* Excess cost over net assets acquired 773,000
* Common stock issued in connection with acquisition
and acquisition costs (960,000)
------------------------------------------------------------------------------
* Liabilities assumed $ (390,000)
==============================================================================
The above transactions were accounted for by the purchase method, and
accordingly, the results of operations of the acquired businesses have been
included in the accompanying consolidated financial statements from the dates
the Company assumed operational control of the acquired entity.
On September 1, 1997, the Company acquired 100% of the assets of Apollo
Pipe & Valve ("Apollo") in exchange for an aggregate of $100,000 and 25,000
shares of the Company's common stock in a private transaction exempt from
registration under the Securities Act of 1933, as amended. Apollo is a
distributor of industrial pipe valves and fittings throughout Florida.
Annualized revenues are currently estimated at $500,000.
The transaction was recorded as follows:
* Fair value of assets acquired $ 74,000
* Excess cost over net assets acquired 173,000
* Common stock issued in connection with acquisition
and acquisition costs (200,000)
------------------------------------------------------------------------------
* Liabilities assumed $ (47,000)
==============================================================================
The above transactions were accounted for by the purchase method, and,
accordingly, the results of operations of the acquired businesses have been
included in the accompanying consolidated financial statements from the dates
the Company assumed operational control of the acquired entity.
6
Note 3 - Stockholders' Equity
As set forth in the Company's audited financial statements as contained in
the Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997, on
October 7, 1997 $1,150,019 of a note payable - stockholder was converted to
115,000 shares of Series E Cumulative Non-Participating Preferred Stock ("Series
E Preferred Stock"). The designations, rights and preferences of the Series E
Preferred Stock provides that holders shall receive annual dividends equal to
$77,000, are entitled to full voting rights, share for share with any then
outstanding common stock as well as with any other class or series of the
Company having general voting power with the common stock concerning any matter
being voted upon by the Company's stockholders, and are redeemable solely at the
Company's option at a redemption price to be negotiated by the parties at the
time of the redemption.
Effective September 25, 1997, a note payable was converted to 75,000
shares of Series F 7% Cumulative Non-Participating Preferred Stock ("Series F
Preferred Stock"). The designations, rights and preferences of the Series F
Preferred Stock provides that holders shall receive annual dividends equal to
$52,500, are entitled to full voting rights, share for share with any then
outstanding common stock as well as with any other class or series of the
Company having general voting power with the common stock concerning any matter
being voted upon by the Company's stockholders, and are redeemable solely at the
Company's option at a redemption price to be negotiated by the parties at the
time of the redemption.
7
Item 2. Management's Discussion and Analysis or Plan or Operation.
The following discussion regarding the Company and its business and
operations contains "forward-looking statements" within the meaning of Private
Securities Litigation Reform Act 1995. Such statements consist of any statement
other than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that could
cause actual events or results to differ materially from those referred to in
such forward looking statements. The Company does not have a policy of updating
or revising forward-looking statements and thus it should not be assumed that
silence by management of the Company over time means that actual events are
bearing out as estimated in such forward looking statements.
Results of Operation
During the three months ended September 30, 1997 the Company continued its
expansions plans through the acquistions of LPS Acquisition Corp. ("LPS") and
Apollo Pipe & Value ("Apollo"). Consolidated revenues for the three months ended
September 30, 1997 increased $1,196,167 or approximately 103% from the three
months ended September 30, 1996. This increase is attributable to (i) an
increase in revenues generated by the Company's Manufacturing Division, (ii)
revenues for one month for each of LPS and Apollo, 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 September 30, 1997 decreased approximately 14% from the comparable quarter
in fiscal 1996.
Operating expenses increased approximately 280% for the three months ended
September 30, 1997 from the three months ended September 30, 1996 primarily as a
result of increased selling, general and administrative expenses ("SG&A"). SG&A
on a consolidated basis increased approximately 362% during the three months
ended September 30, 1997 from the three months ended September 30, 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 acquistions,
8
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 the LPS
and Apollo acquisitions.
The Company reported a net loss of $196,575 for the three months ended
September 30, 1997 as compared to net income of $173,605 for the three months
ended September 30, 1996. Approximately $130,000 of the net loss is attributable
to non-cash items including depreciation and amortization of $82,554 and $47,471
of costs associates with the LPS and Apollo acquistions. The remaining portion
of the net loss is attributable to operating losses at Federal (approximately
$53,000) and LPS (approximately $28,000). Management of the Company believes,
although there can be no assurances, that as a result of the Apollo acquisition
(see "Manufacturing Division" below) that Federal is now at break-even and,
following certain management strategies initiated at LPS following its
acquisition by the Company in September 1997, the loss rate at LPS will be
significantly decreased in the subsequent quarters of fiscal 1998.
Manufacturing Division
For the three months ended September 30, 1997 the Manufacturing Division
reported an increase in revenues of approximately 164% from the three months
ended September 30, 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 one month, 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 loss from operations of approximately $13,000 for the three
months ended September 30, 1997 which is attributable to a loss from operations
at Federal; the Company did not report income from operations for each of its
divisions during the comparable period ended September 30, 1996.
As discussed above, during the quarter ended September 30, 1997 Federal
acquired the business and assets of Apollo in a private transaction from an
unaffiliated third party. Apollo is a distributor of industrial pipes, valves
and fittings with annualized revenues of approximately $500,000. Prior to such
acquisition Federal sub-let a portion of its Pompano Beach, Florida facility to
Apollo, which such sublease was negotiated on an arms-length basis. The
principal of Apollo has remained with the company following its acquisition by
Federal to insure both the continued business and operations of Apollo at
9
current levels as well as to assist in the expansion of Apollo's operations.
Commencing in the second quarter of fiscal 1998, Apollo will begin the marketing
and sale to industrial manufacturing businesses in the State of Florida of power
transmission components, including new and refurbished gear boxes in close
association with IFR and MRO.
Staffing Division
For the three months ended September 30, 1997 the Staffing Division
reported a decrease in revenues of approximately 33% from the three months ended
September 30, 1996. The Staffing Division reported a loss from operations of
approximately $15,000 for the three months ended September 30, 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 September 30, 1996.
During the quarter ended September 30, 1997 the Company undertook an
internal realignment of one of its subsidiaries. OIS, a staffing company which
provides personnel with speciality skills, such as transportation operation and
equipment maintenance, was realigned to fall within the Manufacturing Division,
leaving American Industrial Management, Inc. ("AIM") as the component of the
Staffing Division. As a result of the specialized nature of the services
provided by OIS, coupled with the synergic customer base of IFR and OIS,
management of the Company undertook such realignment to both increase the
operating efficiency of OIS as well as to provide better service to its
customers.
Consumer Products Division
Revenues for the Consumer Products Division increased approximately 81%
for the three months ended September 30, 1997 versus the three months ended
September 30, 1996. This increase reflects revenues from LPS which the Company
acquired in September 1997. LPS' revenues are currently annualized at
approximately $3.2 million. Accordingly, management of the Company believes the
revenues from this division will increase measurably during the second quarter
of fiscal 1998 and beyond as a result of this acquisition. The Consumer Products
Division reported a loss from operations of approximately $28,000; the Company
did not report income from operations for each of its divisions during the
comparable period ended September 30, 1996.
10
Liquidity and Capital Resources
The Company's working capital at September 30, 1997 was $3,129,938 versus
$1,817699 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. While the Company does not presently
anticipate any significant capital expenditures, in order to pursue the
Company's plan of operations for fiscal 1998 it will be necessary for the
Company to raise additional working capital. A substantial portion 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.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
In conjunction with the acquisition of LPS, on September 25, 1997 Eric
Deckinger and Adrienne Deckinger (collectively, "Deckinger"), unaffiliated third
parties, converted $750,000 of debt due by LPS to them into 75,000 shares of the
Company's Series F 7% Cumulative Non-Participating Preferred Stock ("Series F").
The designations, rights and preferences of the Series F provide (a) for annual
dividends equal to $52,500, (b) full voting rights, share for share, with any
then outstanding Common Stock as well as with any other class or series of stock
of the Company having general voting power with the Common Stock concerning any
matter being voted upon by the Company's stockholders, (c) is not convertible
into any other class of capital stock of the Company and (d) is redeemable at
the option of the Company at a redemption price to be negotiated by the parties
at the time of redemption, PROVIDED, HOWEVER, that the shares of Series F may
only be redeemed contemporaneously with or subsequent to the redemption of all
then outstanding shares of Series E Cumulative Non-Participating Preferred Stock
then issued and outstanding. A copy of the Articles of Amendment to the
Company's Articles of Incorporation setting forth the designations, rights and
preferences of the Series F is filed herewith as Exhibit 3(i) and a copy of the
Conversion Agreement is filed herewith as Exhibit 10.
On October 28, 1997 the Board of Directors of the Company, together with
the holders of a majority of the issued and outstanding voting securities of the
Company, adopted a resolution changing the name of the Company to "Coventry
Industries Corp." A copy of the Articles of Amendment to its Articles of
Incorporation relative to such name change is filed herewith as Exhibit 3(ii).
12
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
No. Description
- --- -----------
3(i) Articles of Amendment to the Articles of Incorporation of Workforce
Systems Corp. setting forth the designations, rights and preferences
of the Series F 7% Cumulative Non-Participating Preferred Stock.
3(ii) Articles of Amendment to the Articles of Incorporation of Workforce
Systems Corp. changing the name of the corporation to Coventry
Industries Corp.
10 Conversion Agreement dated September 25, 1997 between Workforce
Systems Corp., LPS Acquisition Corp. and Eric Deckinger and Adrienne
Deckinger
27 Financial Data Schedule (Electronic filing only).
(b) Reports on Form 8-K.
During the three months ended the Company filed the following Reports on
Form 8-K with the Securities and Exchange Commission:
1. On August 6, 1997 the Company filed a Report on Form 8-K disclosing
under Item 4. thereof a change in the Company's independent auditors from Lyle
H. Cooper, C.P.A. to BDO Seidman, LLP.
2. On August 12, 1997 the Company filed a Report on Form 8-K providing
under Item 7. the audited financial statements of Federal Supply, Inc. and
Federal Fabrication, Inc.
3. On September 16, 1997 the Company filed a Report on Form 8-K
disclosing under Item 5. a change in the members of the Company's Board of
Directors.
4. On September 22, 1997 the Company filed a Report on Form 8-K
disclosing under Item 2. the acquisition of LPS Acquisition Corp.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Coventry Industries Corp,
a Florida corporation
Date: November 6, 1997 By: /s/ Robert Hausman
------------------
Robert Hausman,
President
14