SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report: November 21, 1997
COVENTRY INDUSTRIES CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 000-22653 65-0353816
- - --------------- ------------ --------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
7777 Glades Road, Suite 211
Boca Raton, Fl 33069
-------------------------------------------
(Address of executive offices and Zip Code)
Registrant's telephone number, including area code: 561-488-4802
Not Applicable
-------------------------------------------------------------
(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Independent Auditor Report F-1
Combined Financial Statements:
Combined Balance Sheet F-2
Combined Statement of Operations and Accumulated Deficit F-3
Combined Statement of Cash Flow F-4
Notes to Finanical Statements F-5
Pro Forma Combined Financial Information F-9
1
Sweeney, Gates & Co.
(A partnership of Professional Associations)
Certified Public Accountants and Consultants
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Kedac, Inc.
(Debtor in Possession)
We have audited the accompanying statement of assets and liabilities in
liquidation of Kedac, Inc. (Debtor in Possession) as of December 31, 1996, and
the related statements of operations and accumulated deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities in liquidation of Kedac, Inc.
(Debtor in Possession) as of December 31, 1996, and the results of its
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles applied on the basis described in the following
paragraph.
As described in Note 3 to the financial statements, certain assets were sold on
August 8, 1997 and the Company commenced liquidation shortly thereafter. As a
result, the Company changed its basis accounting for its balance sheet on
December 31, 1996 from the going concern basis to a liquidation basis.
It is not presently determinable whether the amounts realizable from the
disposition of the remaining assets or the amounts that creditors agree to
accept in settlement of the obligations due them will differ materially from the
amounts shown in the accompanying financial statements.
Sweeney, Gates & Co.
November 17, 1997
2691 E. Oakland Park Boulevard, Suite 302, Fort Lauderdale, FL 33306
(954)776-2000 Fax (954)776-2023
F-1
KEDAC, INC
Statement of Assets and Liabilities in Liquidation
December 31, 1996
ASSETS
Current assets
Accounts receivable, less allowance of $40,431 $ 311,034
Inventory 38,214
Prepaid expenses 58,156
-----------
Total current assets 407,404
Plant and equipment, net 1,053,010
Other assets 325
-----------
$ 1,460,739
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities subject to compromise:
Bank overdraft $ 86,550
Notes payable 1,885,615
Accounts payable and accrued expenses 496,140
Accrued litigation provision 780,000
Accrued interest payable 22,256
Due to stockholder 1,386,831
-----------
Total current liabilities 4,657,392
-----------
Stockholders' deficit
Common stock, $1 par value, 110 share authorized,
110 shares issued and outstanding 110
Additional paid-in capital 331,424
Accumulated deficit (3,528,187)
-----------
Total stockholders' deficit (3,196,653)
-----------
$ 1,460,739
===========
The accompanying notes are an integral part of these financial statements
F-2
KEDAC, INC.
Statement of Operations and Accumulated Deficit
For the Year Ended December 31, 1996
Revenues $ 2,272,714
Cost of sales 1,983,994
-----------
Gross profit 288,720
-----------
Expenses:
General and administrative expenses 875,527
Depreciation 324,203
-----------
Total expenses 1,199,730
-----------
Operating loss before reorganization items
and other expenses (911,010)
-----------
Other income (expenses):
Interest expense (340,067)
Provision for lawsuits (780,000)
Gain on disposition of equipment 62,491
Reorganization items (484,806)
-----------
(1,542,382)
-----------
Net loss (2,453,392)
Accumulated deficit, begining of year (1,074,795)
-----------
Accumulated deficit, end of year $(3,528,187)
===========
The accompanying notes are an integral part of these financial statements
F-3
KEDAC, INC.
Statement of Cash Flows
For the Year Ended December 31, 1996
Cash flows from operating activities
Net loss $(2,453,392)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 324,203
Litigation provision 780,000
Net realizable value adjustments 484,806
Gain on disposition of equipment (62,491)
Changes in operating assets and liabilities:
Increase in accounts receivable (137,714)
Decrease in inventory 163,023
Decrease in prepaid expenses 8,411
Increase in other assets (17,763)
Increase in accounts payable 139,719
Increase in accrued interest payable 17,263
-----------
Net cash used in operating activities (753,935)
-----------
Cash flows from investing activities
Purchase of equipment (73,506)
-----------
Net cash used in investing activities (73,506)
-----------
Cash flows from financing activities
Due to / from stockholder 810,138
Proceeds from notes payable 172,961
Payments on notes payable (155,658)
-----------
Net cash provided by financing activities 827,441
-----------
Net increase (decrease) in cash 0
Cash, beginning of year 0
-----------
Cash, end of year $ 0
===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 322,804
===========
The accompanying notes are an integral part of these financial statements
F-4
KEDAC, INC.
Notes to financial statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Kedac, Inc., doing business as Lantana Peat and Soil
(Debtor in Possession) is in the custom soil mixes business primarily for the
Florida commercial nursery industry.
BASIS OF ACCOUNTING - The accompanying statements of operations and cash flows
have been prepared on the going concern basis of accounting. Since the company
has subsequently sold all of its operating assets, the balance sheet has been
prepared on the liquidation basis. The assets have been written down or valued
at the amounts that will be received by Company on August 8, 1997. The statement
of assets and liabilities in liquidation has been prepared on the liquidation
basis of accounting.
PLANT AND EQUIPMENT - Plant and equipment are carried at the lower of cost
or fair market value. Depreciation is computed using the straight-line
method for financial reporting purposes over lives from three to five years.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the income for the period. Maintenance, repairs and
replacements of minor units of equipment are charged to expense as incurred.
INVENTORY - Inventory is valued at cost using the first-in, first-out method of
valuation.
INCOME TAXES - The Company, with the consent of its shareholders, elected to be
an "S" Corporation under the Internal Revenue Code. All taxable income or loss
flows through to the shareholders. Accordingly, no income tax expense or
liability is recorded in the accompanying financial statements.
RECOVERABILITY OF LONG LIVED ASSETS - The Company has adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Due to the Company filing
for relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Southern District, the Company has provided for the
impairment of these assets.
ESTIMATES - The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates based on
management's knowledge and experience. Accordingly, actual results could differ
from those estimates.
F-5
KEDAC, INC.
Notes to financial statements
NOTE 2. PETITION FOR RELIEF UNDER CHAPTER 11
On January 2, 1997, Kedac, Inc ("Debtor") filed petitions for relief under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court
for the Southern District. Under Chapter 11, certain claims against the Debtor
in existence prior to the filing of the petitions for relief under the federal
bankruptcy laws are stayed while the Debtor continues business operations as
Debtor in Possession. These claims are reflected in the December 31, 1996
statement of asset and liabilities in liquidation as "liabilities subject to
compromise." Additional claims (liabilities subject to compromise) may arise
subsequent to the filing date resulting from rejection of executory contracts,
including leases, and from the determination by the Court (or agreed to by
parties in interest) of allowed claims for contingencies and other disputed
amounts. Claims secured against the Debtor's assets ("secured claims") also are
stayed, although the holders of such claims have the right to move the Court for
relief from the stay. Secured claims are secured primarily by liens on the
Debtor's property, plant and equipment.
NOTE 3. PROPERTY HELD FOR SALE AND SUBSEQUENT EVENT
On August 4, 1997, the United States Bankruptcy Court approved a Chapter
11 Liquidation Plan for Kedac, Inc. On August 8, 1997 LPS Acquisition Corp.
(LPS) acquired certain operating assets. The assets sold consisted of:
Inventory $ 38,214
Accounts receivable 311,034
Plant and equipment 70,000
-----------
$ 419,248
===========
The liabilities assumed consisted of notes payable of $300,000 and $450,000 to
banks. See note 6.
NOTE 4. PLANT AND EQUIPMENT
Plant and equipment consist of the following:
Furniture and fixtures $ 14,686
Machinery and equipment 1,622,894
Computer equipment 29,590
Accumulated depreciation (614,160)
-------------
$ 1,053,010
=============
Depreciation was $324,203 for the year ended December 31, 1996.
F-6
KEDAC, INC.
Notes to financial statements
NOTE 5. NOTES PAYABLE
Notes payable consists of the following:
Unsecured note payable to an individual, bearing interest
at 18%. $ 59,000
Note payable to a finance company, bearing interest at
10.25%, payable in monthly installments of $12,000,
balloon payment due on May 1,1998. Loan is secured by
machinery and equipment. 1,042,555
Note payable to bank, bearing interest at 9%, due October
12, 1997. Loan is secured by municipal bonds owned by
principle stockholder. Note was subsequently assumed by
LPS. 450,000
Note payable to finance company, bearing interest at
9.50%, payable in 60 monthly installments of $538. This
loan is secured by a vehicle. 20,708
Note payable to bank, bearing 13% interest only to
November 1997, payable in 36 monthly installments based
on a 20 year amortization, then, a balloon payment at end
of the 60th month. Loan is secured by all inventory,
chattel paper, accounts, equipment and general
intangibles. Note was subsequently assumed by LPS. 300,000
Other unsecured notes payable 13,352
------------
$ 1,885,615
============
F-7
KEDAC, INC.
Notes to financial statements
6. RELATED PARTY TRANSACTIONS
As of December 31, 1996, the Company owed $1,165,018 to its President and
principal shareholder. The notes payable were unsecured and bear interest at 13%
to 18%. As of December 31, 1996, the Company owed $221,813 to another
shareholder. The notes payable are unsecured and bear interest at 18%. The
accrued interest was included in the note balance at the end of the year.
The principle shareholder `s family trust owns the land used by the Company for
its production facilities. The Company pays rent equal to the amount of the
principle loan payments, interest, taxes and insurance on the land. The amount
paid for the year ended December 31, 1996 was $101,817.
Quebec, Inc. is a Corporation wholly owned by the shareholders of Kedac, Inc.
The Company has an option to purchase a Canadian peat bog. The Company advanced
$75,000 for this property. The option expired in February 1996 and has been
written off in reorganization items. See footnote 7.
7. OTHER EXPENSES, REORGANIZATION ITEMS AND PROVISION FOR LAWSUITS
Reorganization items consisted of the following:
Writedown of Quebec receivables $ 220,576
Bankruptcy attorney fees 55,000
Write down of property and equipment 200,552
Other 8,678
----------
$ 484,806
==========
Provision for lawsuits consisted of amount due in connection with the purchase
assets from Can-Flo, Inc. the prior owner. Since the Company filed petitions for
relief under Chapter 11 and subsequently liquidated, the Debtor in Possession
did not pursue the lawsuits and therefore has provided for the entire amount.
F-8
COVENTRY INDUSTRIES CORP.
(FORMERLY WORKFORCE SYSTEMS CORP.)
ACQUISITION OF LPS ACQUISTION CORP.
AND PURCHASE OF ASSETS OF KEDAC, INC.
The following unaudited proforma condensed combined balance sheet and
statements of operations, as of and for the year ended June 30, 1997, give
effect to the September 1, 1997, (effective date) acquisition of LPS
Acquisition Corp. The proforma information is based on the following: historical
financial statements of Coventry Industries, Corp. and LPS Acquisition Corp.
giving effect to the purchase of the assets of Kedac, Inc. and the assumptions
and adjustments in the accompanying notes.
The proforma balance sheet and proforma statements of operations reflects
the historical balance sheet and statement of operations of Coventry Industries
Corp. (Formerly Workforce Systems Corp.) for the year ended June 30, 1997,
combined with the historical balance sheet and statement of operations of Kedac,
Inc. for the year ended June 30, 1997, as if the acquisition had been effective
since the beginning of the fiscal year. The proforma adjustments to the
historical financial statements consist of the purchase of certain assets of
Kedac, Inc. by LPS Acquisition Corp. and the amortization of intangibles and
depreciation of equipment acquired on September 1, 1997.
These proforma operations may not be indicative of the results that
actually would have occurred if the combination had been in effect on the date
indicated or which may be obtained in the future.
F-9
COVENTRY INDUSTRIES CORP
(FORMERLY WORKFORCE SYSTEMS CORP.)
PROFORMA CONDENSED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
Historical
------------------------------------------
Coventry LPS Proforma Consolidated
Industries Acquisitions Kedac, Inc. Adjustments Total
------------- ------------ ------------ --------------- -------------
ASSETS
Current assets
Cash $ 335,321 $ $ $ 335,321
Accounts receivable 1,065,627 266,172 1,331,799
Inventory 1,888,235 1,810 1,890,045
Prepaid expenses 707,238 12,079 (1) (12,079) 707,238
------------ ---------- ----------- -----------
Total current assets 3,996,421 0 280,061 4,264,403
Property, plant and equipment 2,914,731 885,200 (1) (815,200) 2,984,731
Other assets 2,758,020 (1) 690,469 3,448,489
------------ ---------- ----------- -----------
$ 9,669,172 $ 0 $ 1,165,261 $ 10,697,623
============ ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 915,630 $ $ 555,173 (1) (555,173) $ 915,630
Accrued expenses 487,056 824,643 (1) (824,642) 487,057
Factoring line of credit 398,858 398,858
Current maturities of long-term debt 234,447 1,876,841 (1) (1,126,841) 984,447
Note payable - related party 142,731 1,621,546 (1) (1,621,546) 142,731
------------ ---------- ----------- -----------
Total current liabilities 2,178,722 0 4,878,203 2,928,723
Other liabilities 1,855,135 1,855,135
Total stockholders' equity (deficit) 5,635,315 (3,712,942) (1) 3,991,392 5,913,765
------------ ---------- ----------- -----------
$ 9,669,172 $ 0 $ 1,165,261 $ 10,697,623
============ ========== =========== ===========
F-10
COVENTRY INDUSTRIES CORP
(FORMERLY WORKFORCE SYSTEMS CORP.)
PROFORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(Unaudited)
Historical
-----------------------------------------
Coventry LPS Proforma Consolidated
Industries Acquisitions Kedac, Inc. Adjustments Total
------------- ------------ ------------- --------------- -------------
Revenue $ 4,653,286 $ $ 2,345,408 $ 6,998,694
Cost of sales 3,518,500 2,481,347 5,999,847
----------- ----------- ------------ ------------
Gross profit 1,134,786 0 (135,939) 998,847
Operating expenses
General and administrative 1,327,546 620,192 1,947,738
Depreciation and amortization 282,398 329,176 (2) (279,176) 332,398
Provision for doubtful accounts 246,013 77,791 323,804
Professional fees 308,996 30,008 339,004
Marketing and public relations 464,596 3,298 467,894
----------- ----------- ------------ ------------
2,629,549 0 1,060,465 3,410,838
Operating loss (1,494,763) 0 (1,196,404) (2,411,991)
Other expenses
Interest expense 65,488 216,040 (2) (141,040) 140,488
Acquisition expense 110,000 110,000
Provision for lawsuits 780,000 (2) (780,000) 0
Reorganization items 484,806 (2) (484,806) (0)
Startup expenses 1,357,899 1,357,899
----------- ----------- ------------ ------------
1,533,387 0 1,480,846 1,608,387
----------- ----------- ------------ ------------
Loss before income tax benefit (3,028,150) 0 (2,677,250) (4,020,378)
Income tax (benefit) (133,399) (133,399)
----------- ----------- ------------ ------------
Net loss $ (2,894,751) $ 0 $ (2,677,250) $ (3,886,979)
=========== =========== ============ ============
Loss per common share
Net loss per common share $ (3.58) $ (3.60)
=========== ============
Weighted average shares 808,421 1,078,421
outstanding =========== ============
F-11
COVENTRY INDUSTRIES CORP
(FORMERLY WORKFORCE SYSTEMS CORP.)
PROFORMA CONDENSED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
In combining the entities, the following proforma adjustments have been made:
(1) Other assets (goodwill) 690,469
Trade accounts payable 555,173
Accrued expenses 824,642
Current maturities of long-term debt 1,126,841
Note payable - related party 1,621,546
Prepaid expenses 12,079
Property, plant and equipment 815,200
Total stockholders' equity 3,991,392
To record the purchase of assets of Kedac, Inc. and the assumption of
related liabilities related to the assets purchased.
(2) For purpose of presenting the proforma condensed statement of operations
the following adjustments have been made:
Increase (decrease) in income:
Depreciation and amortization $ (279,176)
Interest expense (141,040)
Reorganization items (780,000)
Startup expenses (484,806)
------------
$ (1,685,022)
============
F-12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 21, 1997 By: /s/ Robert L. Hausman
----------------------------
President