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, 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.
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(Exact name of small business issuer as specified in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0353816
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(IRS Employer Identification No.)
7777 Glades Road, Suite 211, Boca Raton, FL 33434
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(Address of principal executive offices)
561-488-4802
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (x) No ( ).
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of January 31, 1998 the
registrant had issued and outstanding 3,005,855 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page No.
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Condensed Consolidated Balance Sheets at
December 31, 1997(unaudited) and
June 30, 1997 (audited) 2
Condensed Consolidated Statements of Operations
for the three and six months ended December 31, 1997
and 1996 (unaudited) 3
Condensed Consolidated Statements of Cash Flow for
the six months ended December 31, 1997
and 1996 (unaudited) 4
Notes to the Condensed Consolidated Financial
Statements (Unaudited) 5 - 7
1
Coventry Industries Corp.
Condensed Consolidated Balance Sheets
December 31, June 30,
1997 1997
----------- -----------
(unaudited) *
Assets
Current Assets
Cash $ 19,571 $ 335,321
Accounts receivable, less $148,300 and $55,442
allowance for doubtful accounts, respectively 1,526,659 1,017,949
Other receivable 289,702 47,678
Inventory 2,300,034 1,888,235
Prepaid expenses 756,890 707,238
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Total current assets 4,892,856 3,996,421
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Property, plant and equipment, less $489,650 and
$324,062 accumulated depreciation, respectively 3,053,839 2,914,731
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Other assets
Excess cost over fair value of assets acquired 3,151,885 2,198,441
Other 139,582 28,330
Prepaid consulting fees 360,415 531,249
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3,651,882 2,758,020
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$11,598,577 $ 9,669,172
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Liabilities and Stockholder's Equity
Current Liabilities
Accounts payable $ 1,361,145 $ 915,630
Accrued expenses 890,924 428,026
Factoring line of credit 307,236 398,858
Income tax payable 80,100 59,030
Current maturities of long-term debt 212,029 234,447
Notes payable 27,958 142,731
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Total current liabilities 2,879,392 2,178,722
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Deferred income taxes 130,000 130,000
Long term debt, less current portion 513,965 575,116
Note payable 819,577 1,150,019
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1,463,542 1,855,135
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Stockholder's Equity
Series A Preferred stock, $.001 par value, 30 shares
authorized, 30 shares issued and outstanding - -
Series C Preferred stock, $.001 par value, 30,000 shares
authorized, 30,000 shares issued and outstanding 30 30
Series E Preferred stock, $.001 par value, 2,000,000 shares
authorized, 115,000 issued and outstanding 115 -
Series F Preferred stock, $.001 par value, 2,000,000 shares
authorized, 75,000 issued and outstanding 75 -
Common Stock, $.001 par value, 25,000,000 shares
authorized, 2,952,446 and 1,952,934 shares issued and
outstanding, respectively 2,952 1,953
Additional paid-in capital 15,941,978 12,567,700
Stock to be earned (1,216,667) (1,416,667)
Accumulated deficit (7,472,840) (5,517,701)
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Total stockholder's equity 7,255,643 5,635,315
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$11,598,577 $ 9,669,172
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* Condensed from audited financial statements
See accompanying notes to condensed consolidated financial statements
2
Coventry Industries Corp.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenues $ 2,842,816 $1,191,411 $ 5,196,354 $2,348,782
Cost of sales 2,185,749 687,164 3,881,832 1,360,961
----------- ---------- ----------- ----------
Gross profit 657,067 504,247 1,314,522 987,821
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Operating expenses
Selling, general and administrative expenses 1,101,554 161,118 1,817,676 316,087
Relocation provision 500,000 - 500,000 -
Depreciation and amortization 136,620 67,500 219,174 135,000
Professional fees 600,000 - 647,471 -
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2,338,174 228,618 3,184,321 451,087
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Income (loss) from operations (1,681,107) 275,629 (1,869,799) 536,734
----------- ---------- ----------- ----------
Other expense
Interest expense (65,285) - (100,500) -
Interest income 2,256 - 2,596 -
Other (14,428) - 12,564 -
----------- ---------- ----------- ----------
(77,457) - (85,340) -
----------- ---------- ----------- ----------
Income (loss) before income tax provision (1,758,564) 275,629 (1,955,139) 536,734
Income tax 0 90,000 - 177,500
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Net income (loss) $(1,758,564) $ 185,629 $(1,955,139) $ 359,234
----------- ---------- ----------- ----------
Earnings per common share:
Net income (loss) per common share $ (0.63) $ 0.31 $ (0.79) $ 0.60
=========== ========== =========== ==========
Weighted average shares outstanding 2,790,371 602,709 2,461,003 602,709
=========== ========== =========== ==========
See accompanying notes to condensed consolidated financial statements
3
Coventry Industries Corp.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 1997 and 1996
(Unaudited)
1997 1996
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Operating Activities:
Net income (loss) $(1,955,139) $ 359,234
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and depreciation 219,174 135,000
Stock compensation 591,904
Changes in operating assets and liabilities:
(Increase) decrease in receivable (83,597) 4,919
(Increase) decrease in other receivable (168,243) 0
(Increase) decrease in inventory (243,799) (386,304)
(Increase) decrease in other assets (111,252) 0
(Increase) decrease in prepaid expenses (49,652) (153,490)
Increase (decrease) in accounts payable 350,412 (94,178)
Increase (decrease) in accrued expenses 462,806 144,294
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Net cash used in operations (987,386) 9,475
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Investing Activities:
Increase in start up costs - (201,469)
Purchase of property and equipment (132,241) (322,930)
Purchase of assets of a business, net (64,927)
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Net cash used in investing activities (197,168) (524,399)
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Financing Activities:
Payments of long-term debt (85,646) (99,957)
Notes payable, net 165,499 (132,667)
Issuance of common stock 788,951 0
(92,473)
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Net cash provided by (used in) financing activities 868,804 (325,097)
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Net increase (decrease) in cash (315,750) (840,021)
Cash, beginning of the period 335,321 938,487
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Cash, end of the period $ 19,571 $ 98,466
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See accompanying notes to condensed consolidated financial statements
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COVENTRY INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 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 instructions 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 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 six month period ended December 31, 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.
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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, 1997 as compared to six months ended December 31,
1996
During the six months ended December 31, 1997 the Company continued its
expansion plans through the acquisitions of LPS Acquisition Corp. ("LPS") and
Apollo Pipe & Value ("Apollo"). Consolidated revenues for the six months ended
December 31, 1997 increased $2,847,572 or approximately 121% from the six months
ended December 31, 1996. This increase is attributable to (i) an increase in
revenues generated by the Company's Manufacturing Division, (ii) revenues for
four months for each of LPS and Apollo, and (iii) two full quarters of revenues
from Federal Supply, Inc. and Federal Fabrication, Inc. (collectively,
"Federal") which were acquired by the Company during the last quarter of fiscal
1997.
Gross profit margins as a percentage of revenues for the six months ended
December 31, 1997 decreased approximately 17% from the comparable six months in
fiscal 1996.
Operating expenses increased approximately 606% for the six months ended
December 31, 1997 from the six months ended December 31, 1996 primarily as a
result of increased selling, general and administrative expenses ("SG&A") and
the inclusion of a $500,000 provision for the current six month period to
provided for anticipated charges associated with the the relocation of the LPS
physical plant. SG&A on a consolidated basis increased approximately 475% during
the six months ended December 31, 1997 from the six months ended December 31,
1996 as a result of the addition of SG&A expenses attributable to the continued
expansion of the Company, including SG&A associated with the LPS and Apollo
acquisitions,
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other ongoing growth of the Company's operations and one time costs associated
with the relocation of the Company's principal executive offices from Knoxville,
Tennessee to Boca Raton, Florida. Other operating expenses were non-cash items
including depreciation and amortization and professional fees related to current
and future expansion of the Company's operations.
The Company reported a net loss of $1,955,139 for the six months ended
December 31, 1997 as compared to net income of $359,234 for the six months ended
December 31, 1996. Approximately $1,419,000 of the net loss is attributable
to non-cash items including depreciation and amortization of approximately
$219,000, a $500,000 provision for the relocation of the LPS physical plant and
approximately $647,000 of costs associated with certain professional fees. The
remaining portion of the net loss is mainly attributable to operating losses at
Federal (approximately $63,000) and LPS (approximately $414,000).
Manufacturing Division
For the six months ended December 31, 1997 the Manufacturing Division
reported an increase in revenues of approximately 143% from the six months ended
December 31, 1996. This increase is attributable to (i) revenues from
Federal for two full fiscal quarters, (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 four
months, 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 income from operations of approximately $104,000 for the six
months ended December 31,1997; the Company did not report income from operations
for each of its divisions during the comparable period ended December 31, 1996.
As discussed above, during the six months ended December 31, 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
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current levels as well as to assist in the expansion of Apollo's operations.
Commencing in the second quarter of fiscal 1998, Apollo began 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 six months ended December 31, 1997 the Staffing Division reported
a decrease in revenues of approximately 30% from the six months ended December
31, 1996. The Staffing Division reported a loss from operations of approximately
$119,000 for the six months ended December 31, 1997 which is attributable to a
concentration of revenues generated from lower margin accounts; the Company did
not report income from operations for each of its divisions during the
comparable period ended December 31, 1996.
During the six months ended December 31, 1997 the Company undertook an
internal realignment of one of its subsidiaries. OIS, a staffing company which
provides personnel with specialty 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 266%
for the six months ended December 31, 1997 versus the six months ended December
31, 1996. This increase reflects revenues from LPS which the Company acquired in
September 1997. LPS revenues are currently annualized at
approximately $2.6 million. The Consumer Products Division reported a loss from
operations of approximately $714,000; the Company did not report income from
operations for each of its divisions during the comparable period ended December
31, 1996.
Three months ended December 31, 1997 as compared to three months ended December
31, 1996
Consolidated revenues for the three months ended December 31, 1997
increased $1,651,405 or approximately 139% from the three months ended December
31, 1996. This increase is attributable to (i) an increase in revenues generated
by the Company's Manufacturing Division, (ii) revenues for three months for each
of LPS and Apollo which were acquired by the Company in the first quarter of the
current fiscal year, and (iii) a full quarter of revenues from Federal Supply,
Inc. and Federal Fabrication, Inc. (collectively, "Federal") which were acquired
by the Company during the last quarter of fiscal 1997.
Gross profit margins as a percentage of revenues for the three months
ended December 31, 1997 decreased approximately 19% from the comparable quarter
in fiscal 1996.
8
Operating expenses increased approximately 923% for the three months ended
December 31, 1997 from the three months ended December 31, 1996 primarily as a
result of increased selling, general and administrative expenses ("SG&A") and
the inclusion of a $500,000 provision for the current period to provided for
anticipated charges associated with the the relocation of the LPS physical
plant. SG&A on a consolidated basis increased approximately 584% during the
three months ended December 31, 1997 from the three months ended December 31,
1996 as a result of the addition of SG&A expenses attributable to the continued
expansion of the Company, including SG&A associated with the LPS and Apollo
acquisitions and the continued growth of the Company's operations. Other
operating expenses were non-cash items including depreciation and amortization
and professional fees.
The Company reported a net loss of $1,758,564 for the three months ended
December 31, 1997 as compared to net income of $185,629 for the three months
ended December 31, 1996. Approximately $736,000 of the net loss is attributable
to non-cash items, including depreciation and amortization and a $500,000
provision for the relocation of the LPS physical plant. The remaining portion of
the net loss is attributable to operating losses at Federal (approximately
$20,000), LPS (approximately $382,000) and corporate overhead (approximately
$83,000).
Manufacturing Division
For the three months ended December 31, 1997 the Manufacturing Division reported
an increase in revenues of approximately 139% from the three months ended
December 31, 1996. This increase is attributable to (i) revenues from Federal
for a full fiscal quarter, (ii) continued increase in revenues from both
Industrial Fabrication & Repair, Inc. ("IFR") and its subsidiary, Maintenance
Requisition Order Corp. ("MRO"), (iii) revenues from Apollo for a full fiscal
quarter, and (iv) the internal realignment of one of the Company's subsidiaries,
Outside Industrial Services, Inc. ("OIS") from the Staffing Division to the
Manufacturing Divisions (see "Staffing Division" below). The Manufacturing
Division reported a income from operations of approximately $119,000 for the
three months ended December 31, 1997; the Company did not report income from
operations for each of its divisions during the comparable period ended December
31, 1996.
Staffing Division
For the three months ended December 31, 1997 the Staffing Division
reported a decrease in revenues of approximately 22% from the three months ended
December 31, 1996. The Staffing Division reported a loss from operations of
approximately $111,000 for the three months ended December 31, 1997 which is
attributable to a concentration of revenues generated from lower margin
accounts; the Company did not report income from operations for each of its
divisions during the comparable period ended December 31, 1996.
Consumer Products Division
Revenues for the Consumer Products Division increased approximately 557%
for the three months ended December 31, 1997 versus the three months ended
December 31, 1996. This increase reflects revenues from LPS which the Company
acquired in September 1997; the Company did not report income from operations
for each of its divisions during the comparable period ended December 31, 1996.
9
Liquidity and Capital Resources
The Company's working capital at December 31, 1997 was $2,013,464 versus
$1,817,699 at June 30, 1997. The increase in working capital is attributable to
increases in accounts receivable and inventory as a result of the Company's
expanded operations and increased revenues. While the Company does not presently
anticipate any significant capital expenditures (excluding the relocation
provision of $500,000 for LPS), 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. Subsequent to December 31, 1997 the Company
successfully completed a private placement of 1,750 shares of 5% convertible
preferred stock as more fully described in Form 8K filed on Janury 29, 1998.
The proceeds from the private placement were used by the Company for general
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.
10
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.
None.
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Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits.
No. Description
- --- -----------
4.1 Warrant agreement
10.1 Financial Advisory Agreement
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 November 21, 1997 the Company filed a Report on Form 8-KA disclosing
under Item 7. Financial information relating to the acquisition of LPS
Acquisition Corp.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Coventry Industries Corp,
a Florida corporation
Date: February 17, 1998 By: /s/ Robert Hausman
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Robert Hausman,
President
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