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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR (G)
OF THE SECURITIES EXCHANGE ACT OF 1934
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BSD HEALTHCARE INDUSTRIES, INC.
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(Name of Small Business Issuer in Its Charter)
Florida 31-1586472
- ---------------------------------- --------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization
1900 Corporate Boulevard, Suite 400 East
Boca Raton, Florida 33431
(561) 988-2544
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(Address and Telephone Number of Principal Executive Offices)
Copies of communications to:
Michael D. Karsch, Esq.
Broad and Cassel
7777 Glades Road, Suite 300
Boca Raton, Florida 33434
Telephone No. (561) 483-7000
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
To be so registered each class is to be registered
None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. BSD'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS DOCUMENT.
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION AND IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THE DOCUMENT AND PARTICULARLY IN THE SECTION ENTITLED "RISK
FACTORS."
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
BSD Healthcare Industries, Inc., or BSD, was incorporated in Florida on
February 7, 1989 as Park Avenue Marketing, Inc. BSD did not conduct any
operations until February 1, 1998 when it acquired 100% of the common stock of
two commonly-controlled companies, Respiratory Care Services, Inc. and RCS
Subacute, Inc. In December 1998, Coventry Industries Corp. acquired 80.1% of the
outstanding common stock of BSD in exchange for 118,250 shares of Coventry
common stock from Stephen Rosedale and Ronald Wilheim. Messrs. Rosedale and
Wilheim are currently officers and directors of Coventry and will become its
principal shareholders upon completion of the acquisition of PeopleFirst L.L.C.
("PF"). ("Coventry"). In July 1999, partially as a result of a change in
reimbursement rates and the resulting losses and Coventry's intention to focus
its efforts on PF, Messrs. Rosedale and Wilheim purchased Respiratory Care
Services, Inc. and RCS Subacute, Inc. from BSD in exchange for 75,000 shares of
Coventry common stock.
BUSINESS OBJECTIVE
BSD now seeks acquisition possibilities throughout the United States
and to make acquisitions or enter into other business endeavors to the extent
its limited assets will allow. BSD is a "blank check" or "blind pool" company to
effect The current business objective of BSD is to effect a merger, exchange of
capital stock, asset acquisition or other business combination (a "Business
Combination") with an operating business (a "Target Business") which BSD
believes has significant growth potential.
BSD will seek to acquire a Target Business without limiting itself to a
particular industry. Most likely, the Target Business will be primarily located
in the United States, although BSD reserves the right to acquire a Target
Business primarily located outside the United States. In seeking a Target
Business, BSD will consider, without limitation, businesses which (i) offer or
provide services or develop, manufacture or distribute goods in the United
States or abroad, including, without limitation, in the following areas: health
products, educational services, environmental services, consumer-related
products and services, personal care services, voice and data information
processing and transmission and related technology development or
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(ii) is engaged in wholesale or retail distribution. While BSD may, under
certain circumstances, seek to effect Business Combinations with more than one
Target Business, in all likelihood, as a result of its limited resources, BSD
will have the ability to effect only a single Business Combination with a Target
Business. BSD does not intend to register as a broker-dealer, merge with or
acquire a registered broker-dealer, or otherwise become a member of the NASD.
BSD's officers and directors have had preliminary contact or discussions with
representatives of several other company regarding the possibility of a Business
Combination between BSD and such other company, although none of these have
resulted in any agreements or understandings and it is possible if not likely
that no transaction will be consummated with any of these parties .
Management does not intend to undertake any efforts to cause a market
to develop in BSD's securities until such time as it has successfully
implemented its business plan described herein.
SELECTION OF A TARGET BUSINESS AND STRUCTURING OF A BUSINESS COMBINATION.
Management of BSD will have substantial flexibility in identifying and
selecting a prospective Target Business. As a result, investors in BSD will be
almost entirely dependent on the judgment of management in connection with the
selection of a Target Business. In evaluating a prospective Target Business,
management will consider, among other factors, the following: (i) costs
associated with effecting the Business Combination; (ii) equity interest in and
opportunity for control of the Target Business; (iii) growth potential of the
Target Business; (iv) experience and skill of management and availability of
additional personnel of the Target Business; (v) capital requirements of the
Target Business; (vi) competitive position of the Target Business; (vii) stage
of development of the Target Business; (viii) degree of current or potential
market acceptance of the Target Business, products or services; (ix) proprietary
features and degree of intellectual property or other protection of the Target
Business; (x) the financial statements of the Target Business; and (xi) the
regulatory environment in which the Target Business operates.
The foregoing criteria are not intended to be exhaustive and any
evaluation relating to the merits of a particular Target Business will be based,
to the extent relevant, on the above factors as well as other considerations
deemed relevant by management in connection with effecting a Business
Combination consistent with BSD's business objectives. In connection with its
evaluation of a prospective Target Business, management, with the possible
assistance of an independent investment banking firm, anticipates that it will
conduct a due diligence review which will encompass, among other things, meeting
with incumbent management and inspection of facilities, as well as a review of
financial, legal and other information which will be made available to BSD.
The time and costs required to select and evaluate a Target Business
(including conducting a due diligence review) and to structure and consummate
the Business Combination (including negotiating and documenting relevant
agreements and preparing requisite documents for filing pursuant to applicable
securities laws and state "blue sky" and corporation laws) cannot presently be
ascertained with any degree of certainty. BSD's current executive officers and
directors intend to devote only a small portion of their time to the affairs of
BSD and,
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accordingly, consummation of a Business Combination may require a greater period
of time than if BSD's management devoted their full time to BSD's affairs.
However, each officer and director of BSD will devote such time as they deem
reasonably necessary to carry out the business and affairs of BSD, including the
evaluation of potential Target Businesses and the negotiation of a Business
Combination and, as a result, the amount of time devoted to the business and
affairs of BSD may vary significantly depending upon, among other things,
whether BSD has identified a Target Business or is engaged in active negotiation
of a Business Combination. Any costs incurred in connection with the
identification and evaluation of a prospective Target Business with which a
Business Combination is not ultimately consummated will result in a loss to BSD
and reduce the amount of capital available to otherwise complete a Business
Combination or for the resulting entity to utilize.
BSD anticipates that various prospective Target Businesses will be
brought to its attention from various sources, including securities
broker-dealers, investment bankers, venture capitalists, bankers, other members
of the financial community and affiliated sources, including, possibly, BSD's
executive officer, directors and their affiliates. While BSD has not yet
ascertained how, if at all, it will advertise and promote itself, it may elect
to publish advertisements in financial or trade publications seeking potential
business acquisitions. BSD may also engage the services of professional firms
that specialize in finding business acquisitions, in which event BSD may pay a
finder's fee or other compensation. In no event, however, will BSD pay a
finder's fee or commission to officers or directors of BSD or any entity with
which they are affiliated for such service.
As a general rule, Federal and state tax laws and regulations have a
significant impact upon the structuring of business combinations. BSD will
evaluate the possible tax consequences of any prospective Business Combination
and will endeavor to structure a Business Combination so as to achieve the most
favorable tax treatment to BSD, the Target Business and their respective
stockholders. There can be no assurance that the Internal Revenue Service or
relevant state tax authorities will ultimately assent to BSD's tax treatment of
a particular consummated Business Combination. To the extent the Internal
Revenue Service or any relevant state tax authorities ultimately prevail in
recharacterizing the tax treatment of a Business Combination, there may be
adverse tax consequences to BSD, the Target Business and their respective
stockholders. Tax considerations as well as other relevant factors will be
evaluated in determining the precise structure of a particular Business
Combination, which could be effected through various forms of a merger,
consolidation or stock or asset acquisition.
ACQUISITION RESTRICTIONS.
BSD may acquire a company or business by purchasing, trading or selling
the securities of such company or business. However, BSD does not intend to
engage primarily in such activities. Specifically, BSD intends to conduct its
activities so as to avoid being classified as an "investment company" under the
Investment Company Act of 1940, and therefore avoid application of the costly
and restrictive registration and other provisions of the Investment Company Act
of 1940 and the regulations promulgated thereunder.
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BSD will be subject to certain reporting requirements under the
Securities Exchange Act of 1934 (the "Act"). Pursuant to Section 13 and 15(d) of
the Act, in the event significant acquisitions take place, BSD will be required
to furnish information including certified financial statements for the acquired
company covering one or two years depending upon the relative size of the
acquisition. Consequently, acquisition prospects that do not have or are unable
to obtain the required certified financial statements will not be appropriate
for acquisition so long as the reporting requirements of the Exchange Act are
applicable.
Various impediments to an acquisition of a business or company or a
merger may arise such as appraisal rights afforded the shareholders of a
prospective acquisition company or merger partner may arise under the laws of
the state the prospective acquisition company is organized under. This may prove
to be deterrent to a particular combination.
BUSINESS EXPERIENCE OF PRINCIPALS
The officers and the other directors of BSD have business experience
which has provided them with skills that BSD believes will be helpful in
evaluating potential Target Businesses and negotiating a Business Combination.
RETENTION OF INVESTMENT BANKER
BSD may engage an investment banking firm which is a member in good
standing of the NASD to assist BSD in identifying, evaluating, structuring and
negotiating potential Business Combinations.
BSD's office is located at Suite 400, 1900 Corporate Boulevard, Boca
Raton, Florida 33431 and its telephone number is (561) 988-2544.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual
results to differ from those indicated in forward-looking statements made in
this document. The following factors contain some forward looking statements.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They use words such as "anticipate,"
"estimate," "expect," "project," "intend," "plan," "believe," and other words
and terms of similar meaning in connection with any discussion of future
operating or financial performance. In particular, these include statements
relating to our anticipated operating results for the year ending December 31,
1999, and our anticipated cash flow and to future actions, future performance or
results of current and anticipated sales and marketing efforts, expenses, the
outcome of contingencies, and other financial results. From time to time, we
also may provide oral or written forward-looking statements in other materials
we release to the public.
Any or all of our forward-looking statements in this document and in any
other public statements we make may turn out to be wrong. They can be affected
by inaccurate
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assumptions we might make or by known or unknown risks and uncertainties. Many
factors mentioned in the discussion below will be important in determining
future results. Consequently, no forward-looking statement can be guaranteed.
Actual future results may vary materially.
We undertake no obligations to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our future filings with the SEC.
NO RELEVANT OPERATING HISTORY; LIMITED RESOURCES; NO PRESENT SOURCE OF REVENUES.
BSD sold its business in July 1999, so its historical financial
information is of limited value to potential investors in evaluating an
investment in BSD's common stock. Although BSD's directors and its executive
officers have had extensive experience relating to the identification,
evaluation and acquisition of Target Businesses, because of BSD's operating
history, there is only a limited basis upon which to evaluate BSD's prospects
for achieving its intended business objectives. BSD has limited resources and
has had no current revenues. In addition, BSD will not achieve any revenues
until, at the earliest, the consummation of a Business Combination. Moreover,
there can be no assurance that any Target Business, at the time of BSD's
consummation of a Business Combination, or at any time thereafter, will derive
any material revenues from its operations or operate on a profitable basis.
"BLIND POOL" OFFERING; BROAD DISCRETION OF MANAGEMENT.
Prospective investors who invest in BSD will do so without an
opportunity to evaluate the specific merits or risks of any one or more Business
Combinations. As a result, investors will be entirely dependent on the broad
discretion and judgment of management in connection the selection of a Target
Business. There can be no assurance that determinations ultimately made by BSD
will permit BSD to achieve its business objectives.
ABSENCE OF SUBSTANTIVE DISCLOSURE RELATING TO PROSPECTIVE BUSINESS COMBINATIONS;
INVESTMENT IN BSD VERSUS INVESTMENT IN A TARGET BUSINESS
"Blind pool" and "blank check" companies are inherently characterized
by the absence of substantive disclosure, other than general descriptions,
relating to the intended application of company funds. BSD has not yet
identified a prospective Target Business. Accordingly, stockholders have no
substantive information concerning consummation of any specific Business
Combination. There can be no assurance that an investment in the securities
offered hereby will not ultimately prove to be less favorable to stockholders
than a direct investment, if such opportunity were available, in a Target
Business.
THERE IS NO MARKET FOR BSD COMMON STOCK AND NONE MAY DEVELOP
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There can be no assurance that there will be an active trading market
for BSD's securities following the completion of a Business Combination or, if a
market does develop, as to the market price for BSD's securities. While a
prospective Target Business may deem a consummation of a Business Combination
with BSD desirable for various reasons, a Business Combination may involve the
acquisition of, merger or consolidation with, a company which does not need
substantial additional capital, but which desires to establish a public trading
market for its shares, while avoiding what it may deem to be adverse
consequences of undertaking a public offering itself, including time delays,
significant expense, loss of voting control, the time and expense incurred to
comply and compliance with various Federal and state securities laws that
regulate initial public offerings.
UNCERTAIN STRUCTURE OF BUSINESS COMBINATION
The structure of a future transaction with a Target Business cannot be
determined at the present time and may take, for example, the form of a merger,
an exchange of stock or an asset acquisition. BSD may form one or more
subsidiary entities to effect a Business Combination and may, under certain
circumstances, distribute the securities of subsidiaries to the stockholders of
BSD. There cannot be any assurance that a market would develop for the
securities of any subsidiary distributed to stockholders or, if it did, any
assurance as to the prices at which such securities might trade. The structure
of a Business Combination or the distribution of securities to stockholders may
result in taxation of BSD, the Target Business or stockholders.
UNSPECIFIED INDUSTRY AND TARGET BUSINESS; UNASCERTAINABLE RISKS
While BSD will target industries located in the United States, while
reserving the right to acquire a Target Business located elsewhere, BSD has not
selected any particular Target Business or industry in which to concentrate its
Business Combination efforts. None of BSD's directors or its executive officers
have had any contact or discussions with any entity or representatives of any
entity regarding a consummation of a Business Combination. Accordingly, there is
no basis for stockholders to evaluate the possible merits or risks of the Target
Business or the particular industry in which BSD may ultimately operate. To the
extent that BSD effects a Business Combination with a financially unstable
company or an entity in its early stage of development or growth (including
entities without established records of revenues or income), BSD will become
subject to numerous risks inherent in the business and operations of financially
unstable and early stage or potential emerging growth companies. In addition, to
the extent that BSD effects a Business Combination with an entity in an industry
characterized by a high level of risk, BSD will become subject to the currently
unascertainable risks of that industry. An extremely high level of risk
frequently characterizes certain industries which experience rapid growth.
Although management will endeavor to evaluate the risks inherent in a particular
Target Business or industry, there can be no assurance that BSD will properly
ascertain or assess all such risks.
DEPENDENCE UPON EXECUTIVE OFFICERS AND BOARD OF DIRECTORS; NO PRIOR BLIND POOL
EXPERIENCE
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The ability of BSD to successfully effect a Business Combination will
be largely dependent upon the efforts of its executive officers and the Board of
Directors. Notwithstanding the significance of such persons, BSD has not entered
into employment agreements or other understandings with any such personnel
concerning compensation or obtained any "key man" life insurance on their
respective lives. The loss of the services of such key personnel could have a
material adverse effect on BSD's ability to successfully achieve its business
objectives. None of BSD's key personnel are required to commit a substantial
amount of their time to the affairs of BSD and, accordingly, such personnel may
have conflicts of interests in allocating management time among various business
activities. However, the executive officers and the other directors of BSD will
devote such time as they deem reasonably necessary to carry out the business and
affairs of BSD, including the evaluation of potential Target Businesses and the
negotiation and consummation of a Business Combination, and, as a result, the
amount of time devoted to the business and affairs of BSD may vary significantly
depending upon, among other things, whether BSD has identified a Target Business
or is engaged in active negotiation of a Business Combination. Although the
officers and directors of BSD have substantial experience in buying and selling
businesses, they have no prior experience in "blind pool" or "blank check"
companies. BSD will rely upon the expertise of such persons, and the Board does
not anticipate that it will hire additional personnel. However, if additional
personnel are required, there can be no assurance that BSD will be able to
retain such necessary additional personnel.
CONFLICTS OF INTEREST
None of BSD's directors or executive officers are required to commit
their full time to the affairs of BSD and it is likely that such persons will
not devote a substantial amount of time to the affairs of BSD. These persons
will have conflicts of interest in allocating management time among various
business activities. As a result, the consummation of a Business Combination may
require a greater period of time than if BSD's management devoted their full
time to BSD's affairs. However, the executive officers and other directors of
BSD will devote such time as they deem reasonably necessary to carry out the
business and affairs of BSD, including the evaluation of potential Target
Businesses and the negotiation and consummation of a Business Combination and,
as a result, the amount of time devoted to the business and affairs of BSD may
vary significantly depending upon, among other things, whether BSD has
identified a Target Business or is engaged in active negotiation and
consummation of a Business Combination. Certain of the persons associated with
BSD are and may in the future become affiliated with entities engaged in
business activities similar to those intended to be conducted by BSD. Such
persons may have conflicts of interest in determining to which entity a
particular business opportunity should be presented. In general, officers and
directors of a corporation incorporated under the laws of the State of Florida
are required to present certain business opportunities to such corporation.
Accordingly, as a result of multiple business affiliations, certain of BSD's
directors and executive officers may have similar legal obligations to present
certain business opportunities to multiple entities. There can be no assurance
that any conflicts will be resolved in favor of BSD.
LIMITED ABILITY TO EVALUATE TARGET BUSINESS MANAGEMENT; POSSIBILITY THAT
MANAGEMENT WILL CHANGE
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The role of the present management in the operations of a Target Business of BSD
following a Business Combination cannot be stated with certainty. Although BSD
intends to scrutinize closely the management of a prospective Target Business in
connection with its evaluation of the desirability of effecting a Business
Combination with such Target Business, and may retain an independent investment
banking firm to assist BSD in this regard, there can be no assurance that BSD's
assessment of such management will prove to be correct, especially in light of
the possible inexperience of current key personnel of BSD in evaluating certain
types of businesses. While it is possible that certain of BSD's directors or
executive officers will remain associated in some capacities with BSD following
a consummation of a Business Combination, it is unlikely that any of them will
devote a substantial portion of their time to the affairs of BSD subsequent
thereto. Moreover, there can be no assurance that such personnel will have
significant experience or knowledge relating to the operations of the Target
Business acquired by BSD. BSD may also seek to recruit additional personnel to
supplement the incumbent management of the Target Business. There can be no
assurance that BSD will successfully recruit additional personnel or that the
additional personnel will have the requisite skills, knowledge or experience
necessary or desirable to enhance the incumbent management. In addition, there
can be no assurance that the future management of BSD will have the necessary
skills, qualifications or abilities to manage a public company embarking on a
program of business development.
POSSIBLE BUSINESS COMBINATION WITH A TARGET BUSINESS OUTSIDE THE UNITED STATES
BSD may effectuate a Business Combination with a Target Business located outside
the United States. In such event, BSD may face the additional risks of language
barriers, different presentations of financial information, different business
practices, and other cultural differences and barriers. Furthermore, due to
BSD's limited resources, it may be difficult to assess fully these additional
risks. Therefore, a Business Combination with a Target Business outside the
United States may increase the risk that BSD will not achieve its business
objectives.
COMPETITION
BSD expects to encounter intense competition from other entities having
business objectives similar to those of BSD. Many of these entities, including
venture capital partnerships and corporations, other blind pool companies, large
industrial and financial institutions, small business investment companies and
wealthy individuals, are well-established and have extensive experience in
connection with identifying and effecting Business Combinations directly or
through affiliates. Many of these competitors possess greater financial,
technical, human and other resources than BSD and there can be no assurance that
BSD will have the ability to compete successfully. BSD's financial resources
will be limited in comparison to those of many of its competitors. Further, such
competitors will generally not be required to seek the prior approval of their
own stockholders, which may enable them to close a Business Combination more
quickly than BSD. This inherent competitive limitation may compel BSD to select
certain less attractive Business Combination prospects. There can be no
assurance that such prospects will permit BSD to achieve its stated business
objectives.
UNCERTAINTY OF COMPETITIVE ENVIRONMENT OF TARGET BUSINESS
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In the event that BSD succeeds in effecting a Business Combination, BSD
will, in all likelihood, become subject to intense competition from competitors
of the Target Business. In particular, certain industries which experience rapid
growth frequently attract an increasingly larger number of competitors,
including competitors with greater financial, marketing, technical, human and
other resources than the initial competitors in the industry. The degree of
competition characterizing the industry of any prospective Target Business
cannot presently be ascertained. There can be no assurance that, subsequent to a
consummation of a Business Combination, BSD will have the resources to compete
in the industry of the Target Business effectively, especially to the extent
that the Target Business is in a high-growth industry.
ADDITIONAL FINANCING REQUIREMENTS
BSD has had no revenues to date and will be entirely dependent upon
advances from Coventry to implement its business objectives. BSD will not
achieve any revenues (other than investment income) until, at the earliest, the
consummation of a Business Combination. Although BSD anticipates that its
existing resources will be sufficient to effect a Business Combination, inasmuch
as BSD has not yet identified any prospective Target Business candidates, BSD
cannot ascertain with any degree of certainty the capital requirements for any
particular Business Combination. In the event that BSD's existing resources
prove to be insufficient for purposes of effecting a Business Combination
(because of the size of the Business Combination or other reasons), BSD will be
required to seek additional financing. The failure by BSD to secure additional
financing could have a material adverse effect on BSD's ability to consummate a
Business Combination or continued development or growth of the Target Business.
BSD does not have any arrangements with any bank or financial institution to
secure additional financing and there can be no assurance that any such
arrangement, if required or otherwise sought, would be available on terms deemed
to be commercially acceptable and in the best interests of BSD.
STATE BLUE SKY REGISTRATION; RESTRICTED RESALES OF THE SECURITIES
The ability to register or qualify for sale the Shares for both future
initial sale and secondary trading will be limited because a significant number
of states have enacted regulations pursuant to their securities or so-called
"blue sky" laws restricting or, in many instances, prohibiting, the sale of
securities of "blind pool" issuers such as BSD within that state. In addition,
many states, while not specifically prohibiting or restricting "blind pool"
companies, would not register the securities to be offered in a future offering
for sale in their states.
DIVIDENDS UNLIKELY
BSD does not expect to pay dividends prior to the consummation of a
Business Combination. The payment of dividends after consummating any such
Business Combination, if any, will be contingent upon BSD's revenues and
earnings, if any, capital requirements and general financial condition
subsequent to consummation of a Business Combination. The payment of any
dividends subsequent to a Business Combination will be within the discretion of
BSD's then Board of Directors. BSD presently intends to retain all earnings, if
any, for use in
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BSD's business operations and accordingly, the Board does not anticipate
declaring any dividends in the foreseeable future.
AUTHORIZATION OF ADDITIONAL SECURITIES
BSD's Certificate of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock. Although BSD has no commitments as of the
date hereof to issue any additional shares of Common Stock, BSD will, in all
likelihood, issue a substantial number of additional shares in connection with
or following a Business Combination. To the extent that additional shares of
Common Stock are issued, BSD's stockholders would experience dilution of their
respective ownership interests in BSD. Additionally, if BSD issues a substantial
number of shares of Common Stock in connection with or following a Business
Combination, a change in control of BSD will occur which may affect, among other
things, BSD's ability to utilize net operating loss carry forwards, if any.
Furthermore, the issuance of a substantial number of shares of Common Stock may
adversely affect prevailing market prices, if any, for the Common Stock and
could impair BSD's ability to raise additional capital through the sale of its
equity securities.
BSD's Certificate of Incorporation also authorizes the issuance of
5,000,000 shares of blank check preferred stock (the "Preferred Stock"), with
such designations, powers, preferences, rights, qualifications, limitations and
restrictions and in such series as the Board of Directors, subject to the laws
of the State of Florida, may determine from time to time. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue Preferred
Stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of Common
Stock. In addition, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of BSD. Although BSD does not currently intend to issue any shares of
Preferred Stock, there can be no assurance that BSD will not do so in the
future. As of the date hereof, BSD has no outstanding shares of Preferred Stock.
COMPLIANCE WITH PENNY STOCK RULES
BSD's securities will initially be considered a "penny stock" as
defined in the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and the rules thereunder, since the price of each security is less than $5.
Unless such security is otherwise excluded from the definition of "penny stock,"
the penny stock rules apply with respect to that particular security. The penny
stock rules require a broker-dealer prior to a transaction in penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the SEC that provides information about penny stocks and
the nature and level of risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its sales person in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that the broker-dealer, not otherwise exempt from such rules, must make
a special written determination that the penny stock is suitable for the
purchaser and receive the purchaser's written agreement to the transaction.
These disclosure rules have the effect of reducing the level of trading activity
in the
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secondary market for a stock that becomes subject to the penny stock rules. So
long as the common stock is subject to the penny stock rules, it may become more
difficult to sell such securities. Such requirements, if applicable, could
result in reduction in the level of trading activity for that particular
security of BSD and could make it more difficult for investors to sell that
particular security.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The following discussion and analysis of financial condition and
results of operations contain some forward-looking statements. Forward-looking
statements give our current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. They use words such as "anticipate," "estimate,"
"expect," "project," "intend," "plan," "believe," and other words and terms of
similar meaning in connection with any discussion of future operating or
financial performance. In particular, these include statements relating to our
anticipated operating results for the quarter ended June 30, 1999 and the full
year ended December 31, 1999, and our anticipated cash flow, and to future
actions, future performance or results of current and anticipated sales and
marketing efforts, expenses, the outcome of contingencies such as legal
proceedings, and other financial results. From time to time, we also may provide
oral or written forward-looking statements in other materials we release to the
public.
We undertake no obligations to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our future SEC filings. Also note that we provide cautionary
discussion of risks, uncertainties and possibly inaccurate assumptions relevant
to our business under the section entitled "Factors That May Affect Future
Results" in Item 1. Other factors besides those listed could also adversely
affect BSD in the future.
OVERVIEW
All current activity of BSD is related to seeking a Business
Combination. All of BSD's costs to date have been paid out of available cash.
BSD will use its available resources and the net proceeds of any future
financing together with the income and interest earned thereon, principally in
connection with effecting a Business Combination, and structuring and
consummating a Business Combination (including possible payment of finder's fees
or other compensation to persons or entities which provide assistance or
services to BSD). To the extent that common stock is used as consideration to
effect a Business Combination, the balance not expended will be used to finance
the operations of the Target Business.
Results of Operations
Since BSD has sold its operations effective July 1, 1999, it has treated the
healthcare businesses formerly owned by it as discontinued operations. For the
year ended December 31, 1998, BSD had income of $116,282 from discontinued
operations and for the six months ended June 30,
11
<PAGE>
1999, had a loss of $539,149 from discontinued operations, primarily due to the
decrease in the reimbursement rates for BSD's services.
Liquidity and Capital Resources
Substantially all of the assets and liabilities on BSD's June 30, 1999
balance sheet and the information contained on the statement of cash flows
relate to the discontinued operations. BSD currently has limited cash and other
capital resources, but also has very limited operating needs. BSD has relied on,
a will continue to rely on, obtaining resources from its parent Coventry.
BSD may utilize cash derived from the sale of equity securities, debt
securities or bank or other borrowing or a combination thereof as consideration
in effecting a Business Combination. Although BSD has no commitments as of the
date hereof to issue any shares of Common Stock or options or warrants, BSD
will, in all likelihood, issue a substantial number of additional shares in
connection with the consummation of a Business Combination. To the extent that
such additional shares are issued, dilution to the interests of BSD's
stockholders will occur. Additionally, if a substantial number of shares of
Common Stock are issued in connection with the consummation of a Business
Combination, a change in control of BSD may occur which may affect, among other
things, BSD's ability to utilize net operating loss carry forwards, if any.
There currently are no limitations on BSD's ability to borrow funds to
effect a Business Combination. However, BSD's limited resources and lack of
operating history may make it difficult to borrow funds. The amount and nature
of any borrowing by BSD will depend on numerous considerations, including BSD's
capital requirements, potential lenders' evaluation of BSD's ability to meet
debt service on borrowing and the then prevailing conditions in the financial
markets, as well as general economic conditions. BSD does not have any
arrangements with any bank or financial institution to secure additional
financing and there can be no assurance that such arrangements if required or
otherwise sought, would be available on terms commercially acceptable or
otherwise in the best interests of BSD. The inability of BSD to borrow funds
required to effect or facilitate a Business Combination, or to provide funds for
an additional infusion of capital into a Target Business, may have a material
adverse effect on BSD's financial condition and future prospects, including the
ability to effect a Business Combination. To the extent that debt financing
ultimately proves to be available, any borrowing will subject BSD to various
risks traditionally associated with indebtedness, including the risks of
interest rate fluctuations and insufficiency of cash flow to pay principal and
interest. Furthermore, a Target Business may have already incurred debt
financing and, therefore, subject BSD to all the risks inherent thereto.
ITEM 3. DESCRIPTION OF PROPERTY
BSD's corporate headquarters are located in space provided to it on a
rent free basis by Coventry, and it is anticipated that this arrangement will
remain until such time as BSD successfully consummates a Business Combination.
12
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of BSD, beneficially by each person
owning more than 5% of such common shares and the directors and executive
officers, and by all officers and directors, as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership Outstanding
- ---------------- -------------------- -----------
<S> <C> <C> <C>
Coventry Industries Corp.(1) 1,602,000 61.6%
Robert Hausman 1,602,000(2) 61.6%
Stephen Rosedale 199,996 7.7%
Ronald Wilheim 49,799 1.9%
Saintes Holdings Ltd. (3) 600,000 23.1%
All Officers and Directors 1,851,795 71.2%
as a Group (three persons)
</TABLE>
(1) Address is, 1900 Corporate Boulevard, Suite 400 East, Boca Raton, Florida
33431.
(2) Represents shares owned by Coventry. Mr. Hausman is the President of
Coventry.
(3) Address is Hirzel Court, Guernsey, GY1, 2NN, Channel Islands.
*Less than 1%.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Three directors have been elected to serve until the next annual
meeting of shareholders and until their respective successors will have been
elected and will have qualified or until their earlier resignation, removal from
office or death.
The following table sets forth as the names, ages and positions held
with respect to our directors and executive officers:
<TABLE>
<CAPTION>
Name Age Positions (Held)
---- --- ----------------
<S> <C> <C>
Robert Hausman 43 President and Chief Operating Officer
Stephen Rosedale 55 Chairman of the Board
Ronald Wilheim 30 Director
</TABLE>
Robert Hausman was elected President and a Director in December 1998 following
Coventry's acquisition of BSD common stock. Mr. Mr. Hausman devotes
substantially all of his time and attention to Coventry's business. He became
Coventry's President and a director in May 1997.
13
<PAGE>
From October 1994 to October 1997, Mr. Hausman was president and chief executive
officer of Federal Supply, a subsidiary of Coventry, and since May 1995, Mr.
Hausman has also been 25% shareholder of South Eastern Sound & Communications,
Inc., a Boca Raton based sales, service and installation company of sound and
communications systems.. From February 1982 until July 1994, Mr. Hausman was a
50% owner and Executive Vice President of Bedford Weaving Mills, a Bedford,
Virginia based specialty textile mill. Bedford Weaving Mills was acquired by Mr.
Hausman and his partner in February 1982 from Belding Hemingway, Inc.
Stephen Rosedale was elected a director in February 1998. Mr. Rosedale founded
Communicare Health Services, Inc. in 1978 and since its inception, Mr. Rosedale
has been Chairman of the Board of Directors and Chief Executive Officer.
Communicare owns, operates and manages long term care facilities, home care and
assisted living companies and communities and rehabilitation facilities.
Ronald Wilheim was elected a director in February 1998. Mr. Wilheim has been
Corporate Counsel of CommuniCare since August 1995. Prior to that time, Mr.
Wilheim attended law school at Benjamin Cardozo School of Law in New York.
ITEM 6. EXECUTIVE COMPENSATION
No compensation was paid during 1998 to any officers of BSD. No current
officers are being paid any salary at this time.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Rosedale and Wilheim acquired their BSD common stock from a
principal shareholder of BSD in August 1997 for cash consideration of $200,000.
In December 1998, they sold 80.1% of BSD common stock, or 1,602,000 shares, to
Coventry in exchange for 118,250 shares of Coventry common stock. In July 1999,
Messrs. Rosedale and Wilheim purchased the stock of BSD's two operating
subsidiaries for 75,000 shares of Coventry common stock.
ITEM 8. DESCRIPTION OF SECURITIES
BSD's authorized capital stock consists of 50,000,000 shares of common
stock, par value $.001 per share, 2,600,000 shares of which are issued and
outstanding. The outstanding shares of Common Stock are fully paid and
non-assessable. BSD is further authorized to issue up to 5,000,000 shares of
"blank check preferred stock," par value $.001 per share, none of which are
issued and outstanding as of the date hereof.
Common Stock
The holders of Common Stock are entitled to one vote per share for the
election of directors and with respect to all other matters submitted to a vote
of stockholders. Shares of Common Stock do not have cumulative voting rights,
which means that the holders of more than
14
<PAGE>
50% of such shares voting for the election of directors can elect 100% of the
directors if they choose to do so and, in such event, the holders of the
remaining shares so voting will not be able to elect any directors. Current
holders of BSD's Common Stock, will have majority voting control. As a result,
such persons will be in the position to effectively control the affairs of BSD.
Upon any liquidation, dissolution or winding-up of BSD, the assets of
BSD, after the payment of Company debts and liabilities and any liquidation
preferences of, and unpaid dividends on, any class of preferred stock which may
then be outstanding, if at all, will be distributed pro-rata to the holders of
the Common Stock. The holders of the Common Stock do not have preemptive rights
to subscribe for or purchase any additional shares of common stock to be
authorized. Additional shares of common stock could be used for any proper
corporate purpose, including acquisitions, raising of additional equity capital,
stock dividends or upon the exercise of stock options. The future issuance of
additional shares of common stock on other than a pro rata basis may dilute the
ownership of the stockholders, as well as their proportionate voting rights.
Holders of BSD's Common Stock are entitled to receive such dividends as
the board of directors may from time to time declare to be paid in accordance
with Florida law and if BSD has sufficient surplus or net earnings. BSD has
never paid cash dividends. BSD seeks growth and expansion of its business
through the reinvestment of profits, if any, and does not anticipate that it
will pay dividends in the foreseeable future.
BSD may issue substantial additional shares of its Common Stock in the
future for such valid corporate purposes, as management may, in its sole
discretion, determine, which would then cause substantial dilution to BSD's then
Common Stockholders.
Preferred Stock
BSD's Board of Directors is authorized to issue such preferred stock in
one or more series, with such designations, preferences, conversion rights,
cumulative, relative, participating, optional or other rights, including voting
rights, qualifications, limitations or restrictions thereof as shall be stated
and expressed in the resolution or resolutions providing for the creation and
issuance of such series of preferred stock as adopted by the Board of Directors.
Accordingly, BSD may issue one or more series of preferred stock in the future
that will have preference over its Common Stock with respect to the payment of
dividends and upon its liquidation, dissolution or winding up or have voting or
conversion rights which could adversely affect the voting power and percentage
ownership of the holders of the Common Stock.
Coventry has no present plans to issue any shares of preferred stock.
15
<PAGE>
PART II
ITEM 1. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(A) MARKET INFORMATION
BSD's Common Stock has been listed for trading on the OTC Bulletin Board under
the symbol "BSDI" since February 3, 1998. BSD does not believe that there was
any trading activity in the BSD Common Stock since that date.
(B) HOLDERS
At July 31, 1999, there were approximately 37 holders of record of
BSD's common stock.
(C) DIVIDENDS
BSD has never paid any of dividends and does not paid dividends on its
common stock and does not intend to pay dividends for the foreseeable future.
BSD intends to retain earnings, if any, to finance the development and expansion
of its business. Payment of dividends in the future will depend, among other
things, upon BSD's ability to generate earnings, its need for capital and its
overall financial condition.
ITEM 2. LEGAL PROCEEDINGS
BSD is not a party to any legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In March 1999, BSD sold an aggregate of 600,000 shares of Common Stock
for a $300,000 note to one accredited investor in an offering exempt from
registration pursuant to Rule 504 promulgated pursuant to the Securities Act of
1933. No commissions or fees were paid.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
BSD may agree to the terms and conditions upon which any director,
officer, employee or agent accepts his office or position and in its By-laws, by
contract or in any other manner may agree to indemnify and protect any director,
officer, employee or agent of BSD, or any person who serves at the request of
BSD as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, to
the fullest extent permitted by the Florida Revised Statutes ("FRS") (including,
without limitation, the statutes,
16
<PAGE>
case law and principles of equity) of the State of Florida. If the Florida laws
(including without limitation, the statutes, case law or principles of equity,
as the case may be) of the State of Florida are amended or changed to permit or
authorize broader rights of indemnification to any of the persons referred to in
the immediately preceding sentence, then BSD shall be automatically authorized
to agree to indemnify such respective persons to the fullest extent permitted or
authorized by such law, as so amended or changed, without the need for amendment
or modification of the Articles of BSD and without further action by the
Directors or stockholders of BSD.
Without limiting the generality of the foregoing provision of this
item, to the fullest extent permitted or authorized by the FRS as now in effect
and as the same may from time to time hereafter be amended, no director of BSD
shall be personally liable to BSD or to its stockholders for monetary damages
for breach of fiduciary duty as a director. Any repeal or modification of the
immediately preceding sentence shall not adversely affect any right or
protection of a director of BSD existing hereunder with respect to any act or
omission occurring prior to or at the time of such repeal or modification.
17
<PAGE>
INDEX TO FINANCIAL STATEMENTS
------------------------------
PAGE
----
BSD HEALTHCARE INDUSTRIES, INC.:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED:
BALANCE SHEETS
DECEMBER 31, 1998 AND JUNE 30, 1999 (UNAUDITED) F-3
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 (UNAUDITED) F-4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED) F-5
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 (UNAUDITED) F-6
NOTES TO FINANCIAL STATEMENTS F-7/17
RESPIRATORY CARE SERVICES, INC. AND RCS SUBACUTE, INC.:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-18
COMBINED:
BALANCE SHEETS
JANUARY 31, 1998 AND DECEMBER 31, 1997 F-19
STATEMENTS OF INCOME
MONTH ENDED JANUARY 31, 1998 AND YEAR ENDED
DECEMBER 31, 1997 F-20
STATEMENTS OF STOCKHOLDERS' EQUITY
MONTH ENDED JANUARY 31, 1998 AND YEAR ENDED
DECEMBER 31, 1997 F-21
STATEMENTS OF CASH FLOWS
MONTH ENDED JANUARY 31, 1998 AND YEAR ENDED
DECEMBER 31, 1997 F-22
NOTES TO FINANCIAL STATEMENTS F-23/27
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders
BSD Healthcare Industries, Inc.
We have audited the accompanying consolidated balance sheet of BSD HEALTHCARE
INDUSTRIES, INC. AND SUBSIDIARIES as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BSD Healthcare
Industries, Inc. and Subsidiaries as of December 31, 1998, and their results of
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
J.H. COHN LLP
Roseland, New Jersey
August 4, 1999
F-2
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
December June
ASSETS 31, 1998 30, 1999
------ ---------------- ------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,171 $ 52,036
Accounts receivable, net of allowance for doubtful accounts
of $235,000 and $263,000 1,363,310 622,896
Other current assets 20,850 22,718
Receivable from affiliate 76,244
---------- ----------
Total current assets 1,478,575 697,650
Equipment, net of accumulated depreciation of $38,827 and
$45,953 90,416 84,113
Deferred loan fees, net of accumulated amortization of $21,083
and $32,583 24,917 13,417
Goodwill, net of accumulated amortization of $377,497 and
$583,405 1,681,577 1,475,669
----------- ----------
Totals $3,275,485 $2,270,849
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Current liabilities:
Notes payable to bank under revolving credit facility $ 81,694 $ 9,980
Note payable to bank under term loan 1,119,444
6% note payable to stockholder on demand 500,000 500,000
Accounts payable 309,142 356,967
Accrued expenses and other liabilities 808,383 440,938
Payable to affiliate 106,394
Estimated loss on disposal of discontinued operations 143,634 143,634
---------- ----------
Total current liabilities 1,842,853 2,677,357
Notes payable to bank under term loan 1,299,991
---------- ----------
Total liabilities 3,142,844 2,677,357
---------- ----------
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none issued and outstanding
Common stock, $.001 par value; 50,000,000 shares authorized;
2,000,000 and 2,600,000 shares issued and outstanding 2,000 2,600
Additional paid-in capital 167,993 467,393
Accumulated deficit (37,352) (576,501)
Stock subscription receivable (300,000)
---------- ----------
Total stockholders' equity (deficiency) 132,641 (406,508)
---------- ----------
Totals $3,275,485 $2,270,849
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30,
December -----------------------------
31, 1998 1999 1998
------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Income (loss) from continuing operations $ - $ - $ -
---------- ---------- ----------
Discontinued health care operations:
Income (loss) from discontinued operations 116,282 (539,149) 157,790
Loss on disposal of discontinued operations (143,634) - -
---------- ---------- ----------
Income(loss) from discontinued operations (27,352) (539,149) 157,790
----------- ---------- ----------
Net income (loss) $ (27,352) $ (539,149) $ 157,790
========== ========== ==========
Basic earnings (loss) per common share:
Earnings (loss) from continuing operations $ - $ - $ -
Earnings (loss) from discontinued operations (.01) (.23) .08
---------- ---------- ----------
Net earnings (loss) per share $ (.01) $ (.23) $ .08
========== ========== ==========
Basic weighted average common shares
outstanding 2,000,000 2,310,000 2,000,000
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED
JUNE 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stock Addi- Stock
-------------------- tional Accu- Sub-
Number Paid-in mulated scription
of Shares Amount Capital Deficit Receivable Total
--------- ------ ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 1,000,000 $1,000 $ 9,000 $ (10,000) $ -
Effect of 1 for 14.5 reverse
stock split (931,034) (931) 931
Proceeds from issuance of
common stock 1,895,480 1,895 (1,895)
Issuance of common stock
in connection with the
acquisition of businesses 35,554 36 159,957 159,993
Net loss (27,352) (27,352)
--------- ------- -------- --------- -----------
Balance, December 31,
1998 2,000,000 2,000 167,993 (37,352) 132,641
Subscription to purchase
common stock 600,000 600 299,400 $(300,000)
Net loss (539,149) (539,149)
--------- ------- -------- --------- --------- -----------
Balance, June 30, 1999 2,600,000 $2,600 $467,393 $(576,501) $(300,000) $(406,508)
========= ====== ======== ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998 AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 (Unaudited)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December June 30,
31, 1998 1999 1998
------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (27,352) $ (539,149) $ 157,790
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 19,186 7,126 7,585
Amortization of goodwill and deferred financing
costs 398,580 217,408 139,505
Bad debt expense 235,000 28,000
Estimated loss on disposal of discontinued
operations 143,634
Changes in operating assets and liabilities:
Accounts receivable (585,550) 712,414 (193,549)
Other current assets (2,497) (1,868) (26,605)
Accounts payable 124,713 47,825 108,559
Accrued expenses and other liabilities 235,983 (367,445) 332,991
---------- ---------- ---------
Net cash provided by operating activities 541,697 104,311 526,276
---------- ---------- ---------
Investing activities:
Purchase of businesses, net of cash acquired
of $39,073 (1,950,086) (1,950,086)
Purchases of equipment (21,881) (823) (7,517)
(Payments to) proceeds received from affiliate (76,244) 182,638 35,400
---------- ---------- ---------
Net cash provided by (used in) investing
activities (2,048,211) 181,815 (1,922,203)
---------- ---------- ---------
Financing activities:
Net repayments of short-term borrowings (429,315) (252,261) (311,000)
Proceeds from borrowings from stockholder 500,000 500,000
Proceeds from borrowings under term loan 1,500,000 1,500,000
Deferred financing costs (46,000) (46,000)
---------- ---------- ---------
Net cash provided by (used in) financing
activities 1,524,685 (252,261) 1,643,000
---------- ---------- ---------
Net increase in cash and cash equivalents 18,171 33,865 247,073
Cash and cash equivalents, beginning of period 18,171
---------- ---------- ---------
Cash and cash equivalents, end of period $ 18,171 $ 52,036 $ 247,073
========== ========== =========
Supplemental disclosure of cash flow data:
Interest paid $ 195,600 $ 90,614 $ 60,297
========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 1 - History and organization of the Company:
BSD Healthcare Industries, Inc. ("BSD") was incorporated in
Florida as Park Avenue Marketing, Inc. on February 7, 1989 to
serve as a "blind pool" or "blank check" company for the purpose
of either merging with or acquiring an operating company. BSD was
initially capitalized by its founders who purchased 68,966 shares
of common stock for $10,000 (share and per share amounts have
been retroactively restated, where appropriate, to reflect a 200
for 1 stock split effected by the Company on June 24, 1997 and a
1 for 14.5 reverse stock split effected by the Company on
February 2, 1998).
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"). RCSI and Subacute are referred to
collectively herein as "RCS," and BSD, RCS and Subacute are
referred to collectively herein as the "Company." As further
explained in Note 3, BSD accounted for the acquisition of its
100% interest in RCS pursuant to the purchase method of
accounting effective as of February 1, 1998 and, therefore, the
historical consolidated financial statements only include the
results of operations of RCS subsequent to its acquisition. Since
the Company did not have any significant activities prior to
February 1, 1998, the Company has not included any statements of
operations, changes in stockholders' equity and cash flows for
the year ended December 31, 1997 in the accompanying consolidated
financial statements.
On December 7, 1998, Coventry Industries Corp. ("Coventry")
issued shares of common stock to the stockholders of BSD and
acquired 80.1% of the outstanding shares of common stock of BSD.
The acquisition of BSD by Coventry had no effect on the
accompanying consolidated financial statements of the Company.
BSD has been a holding company since it acquired RCS and the
Company's only operations have been conducted by RCSI and
Subacute. 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 health
care services are provided primarily to Medicare patients.
F-7
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 1 - History and organization of the Company (concluded):
As further explained in Note 3, on July 1, 1999, the Company's
board of directors and stockholders approved the disposal of the
Company's health care operations and the sale of RCSI and
Subacute to two of the stockholders of Coventry (they also serve
as officers and directors of Coventry) and, accordingly, the
results of operations of the subsidiaries have been reclassified
and reflected as discontinued operations in the accompanying
consolidated statements of operations for all periods subsequent
to their acquisition. Since they conducted all of the business
operations of the Company, the accompanying consolidated
statements of operations do not reflect any continuing operations
and substantially all of the assets and liabilities in the
accompanying consolidated balance sheets are those related to the
discontinued operations.
Subsequent to the consummation of the sale of the subsidiaries,
the management of Coventry intends to use BSD as a "blind pool"
or "blank check" company for the purpose of either merging with
or acquiring an operating company.
F-8
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 2 - Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of BSD and its wholly-owned subsidiaries, RCS and
Subacute, from February 1, 1998, the date they were acquired.
All significant intercompany accounts and transactions have
been eliminated in consolidation.
Unaudited financial statements:
In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of the Company as of June 30,
1999, its results of operations and cash flows for the six
months ended June 30, 1999 and 1998 and its changes in
stockholders' equity for the six months ended June 30, 1999.
Pursuant to rules and regulations of the Securities and
Exchange Commission, 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 year.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Revenue recognition:
The Company recognizes revenue at the time staffing services
are provided.
Cash equivalents:
Cash equivalents include all highly liquid investments with a
maturity of three months or less when acquired.
Equipment:
Equipment is carried at cost. Depreciation is provided using
the straight-line method over estimated useful lives ranging
from five to 14 years.
F-9
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 2 - Summary of significant accounting policies (continued):
Goodwill:
Goodwill, which is comprised of costs in excess of net assets
of acquired businesses, is being amortized on a straight-line
basis over an estimated useful life of five years. The Company
periodically evaluates the recoverability of its intangible
assets and measures the amount of impairment, if any, by
assessing, among other things, the market and economic
conditions related to, and the current and estimated future
levels of income and cash flows to be generated by, the
acquired businesses.
Deferred loan fees:
Deferred loan fees are amortized using the straight-line
method over the term of the Company's loan facilities.
Amortization of such costs is included in interest expense and
approximated $21,000 in 1998.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations were not
material during the year ended December 31, 1998.
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax assets
and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized. The income tax provision
or credit is the tax payable or refundable for the period plus
or minus the change during the period in deferred tax assets
and liabilities.
Earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the
provisions of Statement of Financial Accounting Standards No.
128, Earnings per Share ("SFAS 128"). Basic earnings (loss)
per share is calculated by dividing net income or loss by the
weighted average number of shares outstanding during each
period. The calculation of diluted earnings (loss) per share
is similar to that of basic earnings per share, except that
the denominator is increased to include the number of
additional common shares that would have been outstanding if
all potentially dilutive common shares, such as those issuable
upon the exercise of stock options or under other agreements,
had been issued during the period.
F-10
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 2 - Summary of significant accounting policies (concluded):
Earnings (loss) per share (concluded):
Diluted per share amounts have not been presented in the
accompanying consolidated statements of operations because the
Company did not have any securities or agreements during the
year ended December 31, 1998 and the six months ended June 30,
1999 and 1998 that could have resulted in the issuance of
additional common shares.
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain accounting
pronouncements as of December 31, 1998 and June 30, 1999 that
will become effective in subsequent periods; however,
management of the Company does not believe that any of those
pronouncements would have significantly affected the Company's
financial accounting measurements or disclosures had they been
in effect as of December 31, 1998 and/or June 30, 1999.
F-11
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 3 - Acquisition and disposition of RCS:
The Company acquired its 100% interest in RCS on February 1, 1998
in exchange for total initial consideration of $2,149,150, of
which $1,989,157 was paid in cash and the balance of $159,993 was
paid through the issuance of 35,554 shares of the Company's
common stock at $4.50 per share (the fair market value of the
common stock as of the date of closing). The acquisition has been
accounted for pursuant to the purchase method and, accordingly,
the results of operations of RCS have only been included in the
accompanying consolidated statements of operations from February
1, 1998.
The cost of acquiring RCS, which exceeded the fair value of the
net assets acquired by $1,559,074, was allocated as follows:
Cash and cash equivalents $ 39,073
Accounts receivable 1,012,760
Goodwill 1,559,074
Other current and noncurrent assets 106,074
Short-term notes payable (311,000)
Other current liabilities (256,831)
------------
Total cost of acquisition $2,149,150
===========
The issuance of the shares of common stock as part of the
consideration for the acquisition of RCS was a noncash
transaction that is not reflected in the accompanying 1998
consolidated statement of cash flows.
In connection with the acquisition, the Company agreed to make
additional payments to the former stockholders of RCS based on
the results of operations of RCS during the five year period that
commenced on February 1, 1998. Under generally accepted
accounting principles, such consideration is only accrued and
charged as an additional cost of the acquisition when a
contingent payment becomes due. The Company accrued a liability
of $500,000 for the contingent payment due based on RCS's results
of operations through December 31, 1998 and recorded an
equivalent amount as goodwill. No additional amount was recorded
during the six months ended June 30, 1999. Any additional amounts
of goodwill recorded as a result of the contingent payment
provisions of the acquisition agreement will be amortized
prospectively over the estimated remaining useful life of the
asset.
Unaudited pro forma information showing the Company's results of
operations for the year ended December 31, 1998 and the six
months ended June 30, 1998 assuming the acquisition of RCS had
been consummated on January 1, 1998 has not been presented since
such assumption would have no affect on the results of the
Company's continuing operations.
F-12
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 3 - Acquisition and disposition of RCS (concluded):
As explained in Note 1, on July 1, 1999, the Company's board of
directors and stockholders approved the disposal of all of the
Company's health care operations and the sale of RCSI and
Subacute to two of the stockholders of Coventry. Accordingly, the
results of operations of RCS from February 1, 1998, the date of
acquisition, through June 30, 1999 have been retroactively
reclassified and reflected as income (loss) from discontinued
health care operations in the accompanying consolidated
statements of operations for the year ended December 31, 1998 and
the six months ended June 30, 1999 and 1998.
Since RCS conducted all of the business operations of the
Company, the accompanying consolidated statements of operations
do not reflect any continuing operations and substantially all of
the assets and liabilities in the accompanying consolidated
balance sheets are those related to the discontinued operations.
The Company will receive 75,000 shares of common stock of
Coventry as the total consideration for the sale of RCSI and
Subacute. The Company accrued an estimated loss of $143,634 on
the disposal of its health care operations as of December 31,
1998 based on management's estimate of the carrying value of the
net assets of RCSI and Subacute that will be transferred upon the
consummation of their sale, net of the estimated fair market
value of the shares of Coventry it will receive of $253,152 (or
$3.375 per share). The accrued loss on disposal is included in
income (loss) from discontinued health care operations in the
accompanying consolidated statement of operations for the year
ended December 31, 1998.
F-13
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 4 - Notes payable to bank:
During the year ended December 31, 1998, the Company obtained a
$2,000,000 revolving credit facility and a $1,500,000 term loan
facility from a bank. Interest is payable monthly at 2.5% above
the prime rate on revolving credit facility borrowings and 4%
above the prime rate on term loan borrowings (the applicable
prime rate was 7.75% at December 31, 1998 and June 30, 1999).
Borrowings under the revolving credit facility, which expires in
February 2000, are limited to 80% of the outstanding balance of
the Company's eligible accounts receivable and are secured by all
of its accounts receivable. Borrowings under the revolving credit
facility totaled $81,864 and $9,980 at December 31, 1998 and June
30, 1999, respectively. Since such borrowings are limited based
on accounts receivable balances, they are classified as a current
liability in the accompanying consolidated balance sheets.
The entire balance of the term loan is payable in February 2000
and, accordingly, the balance of $1,299,991 at December 31, 1998
was classified as a noncurrent liability and the balance of
$1,119,444 at June 30, 1999 was classified as a current
liability, in the accompanying consolidated balance sheets.
Borrowings under the term loan are cross-collateralized by the
accounts receivable securing the revolving credit facility and
secured by all of the other available assets of the Company.
F-14
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 5 - Income taxes:
The Company had net operating loss carryforwards of
approximately $37,000 and $539,000 available to reduce future
Federal taxable income as of December 31, 1998 and June 30,
1999, respectively. There were no other material temporary
differences as of those dates. If not used, net operating loss
carryforwards as of June 30, 1999 will expire at various dates
through 2019.
Deferred tax assets of approximately $15,000 and $216,000
attributable to the potential benefits from such net operating
loss carryforwards as of December 31, 1998 and June 30, 1999
respectively, were offset by equivalent valuation allowances due
to the uncertainties related to the extent and timing of the
Company's future taxable income and, accordingly, the Company
did not recognize a credit for income taxes in the accompanying
consolidated statements of operations for the year ended
December 31, 1998 and the six months ended June 30, 1999 and
1998.
F-15
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 6 - Commitments and contingencies:
Leases:
The Company has been utilizing its office space under
month-to-month and other short-term leases while it negotiates
a new lease with its landlord for additional space. Rent
expense charged to operations approximated $46,000, $13,000
and $19,000 for the year ended December 31, 1998 and the six
months ended June 30, 1999 and 1998, respectively.
Litigation:
In the ordinary course of business, the Company is both a
plaintiff and defendant in various legal proceedings. In the
opinion of management, the resolution of these proceedings
will not have a material adverse effect on the consolidated
financial position or results of operations of the Company in
subsequent years.
Concentrations of credit risk and major customers:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents and accounts receivable. The Company places
its cash and cash equivalents with high quality financial
institutions. At times, balances exceed Federally insured
limits. The Company generally extends credit to its customers,
substantially all of whom are located in the central United
States. Management of the Company closely monitors the
extension of credit to customers while maintaining allowances
for potential credit losses. During the year ended December
31, 1998 and the six months ended June 30, 1999 and 1998, no
customer accounted for more than 10% of the Company's
revenues. Generally, the Company does not have a significant
receivable from any single customer and, accordingly,
management does not believe that the Company was exposed to
any significant credit risk at June 30, 1999.
F-16
<PAGE>
BSD HEALTHCARE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1999 and for the
Six Months Ended June 30, 1999 and 1998 is Unaudited)
Note 7 - Fair value of financial instruments:
The Company's material financial instruments at June 30, 1999 for
which disclosure of estimated fair value is required by certain
accounting standards consisted of cash and cash equivalents,
accounts receivable and payable, receivables from and payables to
an affiliate and notes payable. In the opinion of management, (i)
cash and cash equivalents, accounts receivable and payable and
receivables from and payables to the affiliate were carried at
values that approximated their fair values because of their
liquidity and/or their short-term maturities and (ii) notes
payable were carried at values that approximated their fair
values because they had interest rates that approximated those
currently prevailing for financial instruments with similar
characteristics.
Note 8 - Transactions with affiliate:
From time to time, the Company makes payments on behalf of a
company controlled by certain stockholders of Coventry and the
affiliate makes payments on behalf of the Company. Receivables
and payables arising from these transactions are noninterest
bearing and are repaid in the ordinary course of business.
* * *
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders
Respiratory Care Services, Inc. and
RCS Subacute, Inc.
We have audited the accompanying combined balance sheets of RESPIRATORY CARE
SERVICES, INC. and RCS SUBACUTE, INC. as of January 31, 1998 and December 31,
1997, and the related combined statements of income, stockholders' equity and
cash flows for the month ended January 31, 1998 and the year ended December 31,
1997. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Respiratory Care
Services, Inc. and RCS Subacute, Inc. as of January 31, 1998 and December 31,
1997, and their results of operations and cash flows for the month ended January
31, 1998 and the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
J.H. COHN LLP
Roseland, New Jersey
August 4, 1999
F-18
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
COMBINED BALANCE SHEETS
JANUARY 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
January December
ASSETS 31, 1998 31, 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 39,073 $ 17,048
Accounts receivable, net of allowance for doubtful accounts
of $203,765 1,012,760 1,070,402
Other current assets 18,354 15,058
------------ ------------
Total current assets 1,070,187 1,102,508
Equipment, net of accumulated depreciation of $21,065 and
$19,640 87,720 88,123
------------ ------------
Totals $ 1,157,907 $ 1,190,631
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 311,000 $ 295,000
Accounts payable 184,429 281,755
Accrued expenses and other liabilities 72,402 57,026
------------ ------------
Total liabilities 567,831 633,781
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock:
Respiratory Care Services, Inc., no par value; 1,000 shares
authorized, issued and outstanding 2,205 2,205
RCS Subacute, Inc., no par value; 1,000 shares authorized,
issued and outstanding 1,000 1,000
Retained earnings 761,871 728,645
Treasury stock of RCS Subacute, Inc. - 200 shares, at cost (175,000) (175,000)
------------ ------------
Total stockholders' equity 590,076 556,850
------------ ------------
Totals $ 1,157,907 $ 1,190,631
============ ============
</TABLE>
See Notes to Combined Financial Statements.
F-19
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
COMBINED STATEMENTS OF INCOME
MONTH ENDED JANUARY 31, 1998 AND
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Month Year
Ended Ended
January December 31,
31, 1998 1997
-------- ------------
<S> <C> <C>
Revenues $373,399 $4,488,152
Costs of revenues 197,932 2,394,491
--------- -----------
Gross profit 175,467 2,093,661
--------- -----------
Operating expenses:
Selling 10,693 153,434
General and administrative 130,114 1,193,650
--------- -----------
Totals 140,807 1,347,084
--------- -----------
Operating income 34,660 746,577
--------- ------------
Other income (expense):
Interest expense (1,434) (6,665)
Other 1,360
--------- --------------
Totals (1,434) (5,305)
--------- --------------
Income before credit for income taxes 33,226 741,272
Credit for income taxes (112,811)
--------- ------------
Net income $ 33,226 $ 854,083
========= ===========
Historical income before income taxes $ 33,226 $ 741,272
Unaudited pro forma adjusted to eliminate effects
of "S" corporation election:
Provision for income taxes 13,290 296,064
--------- ------------
Net income $ 19,936 $ 445,208
========= ===========
</TABLE>
See Notes to Combined Financial Statements.
F-20
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
MONTH ENDED JANUARY 31, 1998 AND
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------
Respiratory Care Treasury
Services, Inc. RCS Subacute, Inc. Stock of
-------------------- --------------------- RCS Total
Number of Number of Retained Subacute, Stockholders'
Shares Amount Shares Amount Earnings Inc. Equity
--------- ------ --------- ------ -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 1,000 $2,205 1,000 $1,000 $218,277 $ (55,000) $166,482
Dividends (343,715) (343,715)
Repurchase of 100 shares of
common stock (120,000) (120,000)
Net income 854,083 854,083
----- ------ ----- ------ -------- ---------- --------
Balance, December 31, 1997 1,000 2,205 1,000 1,000 728,645 (175,000) 556,850
Net income 33,226 33,226
----- ------ ----- ------ -------- ---------- --------
Balance, January 31, 1998 1,000 $2,205 1,000 $1,000 $761,871 $(175,000) $590,076
===== ====== ===== ====== ======== ========= ========
</TABLE>
See Notes to Combined Financial Statements.
F-21
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
COMBINED STATEMENTS OF CASH FLOWS
MONTH ENDED JANUARY 31, 1998 AND
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Month Year
Ended Ended
January December 31,
31, 1998 1997
-------- ------------
<S> <C> <C>
Operating activities:
Net income $ 33,226 $ 854,083
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,425 14,593
Provision for bad debts 190,765
Deferred income taxes (120,000)
Changes in operating assets and liabilities:
Accounts receivable 57,642 (778,383)
Other current assets (3,296) (6,189)
Accounts payable (97,326) 82,576
Accrued expenses and other liabilities 15,376 (81,112)
-------- ---------
Net cash provided by operating activities 7,047 156,333
-------- ---------
Investing activities - purchases of equipment (1,022) (21,054)
-------- ---------
Financing activities:
Net proceeds from line of credit borrowings 16,000 295,000
Purchases of treasury stock (120,000)
Dividends (343,715)
-------- ---------
Net cash provided by (used in) financing
activities 16,000 (168,715)
-------- ---------
Net increase (decrease) in cash and cash equivalents 22,025 (33,436)
Cash and cash equivalents, beginning of year 17,048 50,484
-------- ---------
Cash and cash equivalents, end of year $39,073 $ 17,048
======= =========
Supplemental disclosure of cash flow data:
Interest paid $ 1,983 $ 6,665
======== =========
Income taxes paid $ 28,018
=========
</TABLE>
See Notes to Combined Financial Statements.
F-22
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Description of business and summary of accounting policies:
Business:
Respiratory Care Services, Inc. ("RCS"), which was
incorporated on July 1, 1988, provides quality respiratory
therapy staff in a variety of health care settings. RCS
Subacute, Inc. ("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.
Principles of combination:
The accompanying combined financial statements include the
accounts of RCS and Subacute which are affiliated by common
ownership. All significant intercompany accounts and
transactions have been eliminated in combination. RCS and
Subacute are referred to together herein as the "Company."
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
Revenue recognition:
The Company recognizes revenue at the time staffing services
are provided.
Cash equivalents:
Cash equivalents include all highly liquid investments with
a maturity of three months or less when acquired.
Equipment:
Equipment is carried at cost. Depreciation is provided using
the straight-line method over estimated useful lives ranging
from five to 14 years.
Advertising:
The Company expenses the cost of advertising and promotions
as incurred. Advertising costs charged to operations were
not material during the month ended January 31, 1998 and the
year ended December 31, 1997.
Income taxes:
Effective January 1, 1997, RCS and Subacute, with the
consent of their stockholders, elected to be treated as "S"
corporations under the applicable sections of the Internal
Revenue Code whereby the income or loss of RCS and Subacute
is allocated to their stockholders for inclusion in their
personal Federal income tax returns. As a result, there are
no provisions for Federal income taxes in the accompanying
historical combined financial statements.
F-23
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Description of business and summary of accounting policies (concluded):
Income taxes (concluded):
RCS and Subacute have also elected to be treated as "S"
corporations for state income tax purposes. However, certain
states impose a tax on "S" corporation income at a reduced
rate and, accordingly, there are provisions for state income
taxes in certain of the accompanying historical combined
financial statements.
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax
assets and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets
to the amount expected to be realized. The income tax
provision or credit is the tax payable or refundable for the
period plus or minus the change during the period in
deferred tax assets and liabilities.
Other recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain accounting
pronouncements as of January 31, 1998 that will become
effective in subsequent periods; however, management of the
Company does not believe that any of those pronouncements
would have significantly affected the Company's financial
accounting measurements or disclosures had they been in
effect as of December 31, 1997 and/or January 31, 1998.
Note 2 - Notes payable to bank:
On September 5, 1997, RCS and Subacute entered into revolving
credit agreements whereby they may borrow up to $100,000 and
$350,000, respectively, against their eligible accounts
receivable through September 1, 1998. Borrowings bear interest,
which is payable monthly, at 2% above a specified prime rate (an
effective rate of 10.5% as of January 31, 1998 and December 31,
1997). Borrowings are cross-guaranteed by RCS and Subacute and
guaranteed by their principal stockholder. The revolving credit
agreements contain certain restrictive covenants which, among
other things, effectively limit the Company's ability to incur
additional bank debt and sell or dispose of certain assets.
As of January 31, 1998 and December 31, 1997, outstanding
borrowings, which arose from loans made to Subacute, totaled
$311,000 and $295,000, respectively, and were secured by
substantially all of the Company's assets.
F-24
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 3 - Income taxes:
The historical provision (credit) for income taxes was comprised
as follows:
Year Ended
December 31,
1997
------------
Federal - deferred $ (97,000)
----------
State:
Current 7,189
Deferred (23,000)
----------
Total (15,811)
----------
Total $ (112,811)
==========
As explained in Note 1, RCS and Subacute elected to be taxed as
"S" corporations for Federal and state income purposes effective
January 1, 1997. Accordingly, the Company was not required to
provide for Federal income taxes, and was required to provide
for state income taxes at reduced rates, during the year ended
December 31, 1997. Prior to making the "S" corporation
elections, the Company accrued deferred tax liabilities as a
result of elections that had been made to utilize a modified
accrual basis of accounting for income tax purposes. As a result
of the "S" corporation elections, the deferred tax liabilities
were reversed and reflected as credits to income taxes in 1997.
The Company's unaudited pro forma provision for income taxes for
the month ended January 31, 1998 and year ended December 31,
1997, assuming RCS and Subacute had not elected to be taxed as
"S" corporations, would have been comprised as follows:
Month
Ended Year Ended
January December
31, 1998 31, 1997
-------- ----------
Current:
Federal $11,296 $229,350
State 1,994 66,714
------- --------
Totals $13,290 $296,064
======= ========
F-25
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 3 - Income taxes (concluded):
A reconciliation of the Federal statutory rate of 34% to the
effective rate for the unaudited pro forma provision for income
taxes for the month ended January 31, 1998 and the year ended
December 31, 1997 follows:
<TABLE>
<CAPTION>
Month Year
Ended Ended
January December 31,
31, 1998 1997
-------- ------------
<S> <C> <C>
Provision at Federal statutory rate 34.0% 34.0%
State income taxes, net of Federal
income tax effect 6.0 5.9
---- ----
Effective rates 40.0% 39.9%
==== ====
</TABLE>
Note 4 - Commitments and contingencies:
Leases:
The Company has been utilizing its office space under
month-to-month and other short-term leases while it
negotiates a new lease with its landlord for additional
space. Rent expense charged to operations approximated
$1,800 and $22,100 for the month ended January 31, 1998 and
the year ended December 31, 1997, respectively.
Litigation:
In the ordinary course of business, the Company is both a
plaintiff and defendant in various legal proceedings. In the
opinion of management, the resolution of these proceedings
will not have a material adverse effect on the combined
financial position or results of operations of the Company
in subsequent years.
Concentrations of credit risk and major customers:
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash
and cash equivalents and accounts receivable. The Company
places its cash and cash equivalents with high quality
financial institutions. At times, balances exceed Federally
insured limits. The Company generally extends credit to its
customers, substantially all of whom are located in the
midsection of the United States. Management of the Company
closely monitors the extension of credit to customers while
maintaining allowances for potential credit losses. During
the month ended January 31, 1998 and the year ended December
31, 1997, no customer accounted for more than 10% of the
Company's revenues. Generally, the Company does not have a
significant receivable from any single customer and,
accordingly, management does not believe that the Company
was exposed to any significant credit risk at January 31,
1998 and December 31, 1997.
F-26
<PAGE>
RESPIRATORY CARE SERVICES, INC. AND
RCS SUBACUTE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 5 - Repurchase of common stock:
Subacute repurchased 100 shares of its outstanding common stock
in the year ended December 31, 1997 for $120,000 which was paid
in cash.
Note 6 - Fair value of financial instruments:
The Company's material financial instruments at January 31, 1998
and December 31, 1997 for which disclosure of estimated fair
value is required by certain accounting standards consisted of
cash and cash equivalents, accounts receivable, accounts payable
and notes payable. In the opinion of management, (i) cash and
cash equivalents, accounts receivable and accounts payable were
carried at values that approximated their fair values because of
their liquidity and/or their short-term maturities and (ii)
notes payable were carried at values that approximated their
fair values because they had interest rates equivalent to those
currently prevailing for financial instruments with similar
characteristics.
Note 7 - Subsequent event:
On February 1, 1998, BSD Healthcare Industries, Inc. ("BSD"), a
newly-formed holding company, purchased 100% of the common stock
of both RCS and Subacute from their respective stockholders. On
July 1, 1999, BSD agreed to sell 100% of the common stock of
both RCS and Subacute to two of the stockholders of Coventry
Industries Corp., the parent of BSD.
* * *
F-27
<PAGE>
PART III
EXHIBITS
Exhibit Number Description
- --------------------------------------------------------------------------------
2.1 Exchange Agreement (1)
- --------------------------------------------------------------------------------
2.2 Stock Purchase Agreement among BSD, Coventry Industries Corp.,
Stephen Rosedale and Ronald Wilheim
- --------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation
- --------------------------------------------------------------------------------
3.2 Bylaws
- --------------------------------------------------------------------------------
27 Financial Data Schedule
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the Form 8-K filed December 22,
1998 by the Registrant's parent Coventry Industry Corp.
- --------------------------------------------------------------------------------
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
BSD HEALTHCARE INDUSTRIES, INC.
Date: August 17, 1999 By: /s/ Robert Hausman
---------------------------------
Robert Hausman, President
<PAGE>
Exhibit 2.2
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of July, 1999 by
and among BSD Healthcare Industries Corp. ("BSD"), Coventry Industries Corp.
("Coventry"), Stephen Rosedale and Ronald Wilheim (the "Shareholders").
WHEREAS, BSD is the owner of Respiratory Care Services, Inc. and RCS
Subacute, Inc. (the "Subsidiaries"); and
WHEREAS, the Shareholders own shares of Coventry; and
WHEREAS, BSD desires to sell and the Shareholders desire to purchase
all of the issued and outstanding stock of the Subsidiaries under the terms and
conditions contained herein; and
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties hereto agree as
follows:
1. Purchase and Sale of Stock. On the terms and subject to the
conditions set forth in this Agreement, BSD agrees to sell, assign, transfer and
deliver to the Shareholders and the Shareholders agree to purchase from BSD the
all of the stock in the Subsidiaries owned by BSD.
2. Purchase Price and Delivery. The total purchase price that shall be
paid by the Shareholders to BSD for the Subsidiaries shall be 75,000 shares of
common stock of Coventry owned by Shareholders.
3. Closing. Closing shall occur simultaneously with the execution of
this agreement. The Closing will occur at the offices of Coventry, 1900
Corporate Boulevard, Boca Raton, FL 33431 at 10:00 am unless a different date or
time is agreed to by the parties in writing in advance. Failure to close on said
date or on any extension date agreed to in writing by the parties shall
terminate this Agreement.
4. Representations and Warranties of BSD. BSD represents and warrants
to Shareholders that the statements contained in this paragraph 5 are correct
and complete and that said representations and warranties shall not survive the
Closing.
(A) Ownership of Subsidiaries Shares. BSD is the sole and
exclusive record and beneficial owners of all of the issued
and outstanding Shares of the Subsidiaries. BSD possess good
title to such shares., Seller has the right to sell, assign,
transfer and deliver such shares to the Shareholders in
accordance with the terms of this Agreement.
-1-
<PAGE>
(C) Validity of Agreement. BSD has the legal capacity and
authority to enter into this Agreement. This Agreement is a
valid and legally binding obligation of BSD and is fully
enforceable against BSD in accordance with its terms, except
as such enforceability may be limited by general principles of
equity, bankruptcy, insolvency, moratorium and similar laws
relating to creditors rights generally.
5. Severability. The agreements and covenants contained herein are
severable, and in the event any of them shall be held to be invalid by a court
of competent jurisdiction, this Agreement shall be interpreted as if such
invalid agreements or covenants were not contained herein.
6. Amendment and Modifications. This Agreement may be amended or
modified only by writing, executed and delivered by the parties hereto.
7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall, for all purposes of this Agreement, be deemed
an original, but all of which shall constitute one and the same agreement.
8. Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, the respective parties hereto, their successors, legal
representatives, heirs and, to the extent herein permitted, assigns.
9. Governing Law This Agreement and any performance hereunder shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the day and year first above written.
BSD Healthcare Industries, Inc. Coventry Industries Corp.
By: /s/Ronald Wilheim By: /s/ Robert Hausman
------------------- --------------------
Ronald Wilheim Robert Hausman
/s/ Stephen Rosedale /s/ Ronald Wilheim
--------------------- --------------------
Stephen Rosedale Ronald Wilheim
-2-
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
PARK AVENUE MARKETING, INC.
The undersigned subscriber to these Articles of Incorporation, a
natural person competent to contract, hereby forms a corporation under the laws
of the State of Florida.
ARTICLE I
The name of this corporation is PARK AVENUE MARKETING, INC.
ARTICLE II
NATURE OF THE BUSINESS
This corporation shall have the power to transact or engage in any
business permitted under the laws of the United States and of the State of
Florida.
ARTICLE III
CAPITAL STOCK
The capital stock of this corporation shall consist of 7,500 shares of
common stock having a par valued of One ($1.00) Dollar per share. All of said
stock shall be issued only for cash or other property or for services at a just
valuation as shall be determined by the Board of Directors.
ARTICLE IV
INITIAL CAPITAL
The amount of capital with which this corporation shall commence
business shall be not less than One Hundred ($100.00) Dollars.
ARTICLE V
TERM OF EXISTENCE
This corporation shall have perpetual existence.
ARTICLE VI
INITIAL ADDRESS
The initial address of the principal place of business of this
corporation in the State of Florida shall be 4051 Park Avenue, Coconut Grove,
Florida 33153. The Board of Directors may at any time and from time to time move
the principal office of this corporation to any location within or without the
State of Florida.
-1-
<PAGE>
ARTICLE VII
DIRECTORS
The business of this corporation shall be managed by its Board of
Directors, the number of such directors shall not be less than one (1) and,
subject to such minimum may be increased or decreased from time to time in the
manner provided in the By-Laws. The number of persons constituting the initial
Board of Directors shall be 1.
ARTICLE VIII
INITIAL DIRECTORS
The names and addresses of the initial Board of Directors are as
follows:
Michael R. Fridovich 4051 Park Avenue
Coconut Grove, FL 33133
ARTICLE IX
SUBSCRIBER
The name and address of the person signing these Articles of
Incorporation as subscriber is :
Eric P. Littman
Suite 202
1428 Brickell Avenue
Miami, FL 33131
ARTICLE X
VOTING FOR DIRECTORS
The Board of Directors shall be elected by the Stockholders of the
corporation at such time and in such manner as provided in the By-Laws.
ARTICLE XI
CONTRACTS
No contract or other transaction between this corporation and any
person, firm or corporation shall be affected by the fact that any officer or
director of this corporation is such other party or is, or at some time in the
future becomes, an officer, director or partner of such other contracting party,
or has now or hereafter a direct or indirect interest in such contract.
-2-
<PAGE>
ARTICLE XII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
This corporation shall have the power, in its By-Laws or in any
resolution of its stockholders or directors, to undertake to indemnify the
officers and directors of this corporation against any contingency or peril as
may be determined to be in the best interest of this corporation, and in
conjunction therewith, to procure, at this corporation's expense, policies of
insurance.
ARTICLE XIII
RESTRAINT ON ALIENATION
The stockholders of this corporation shall have the power to include in
the By-Laws, or adopt resolutions by a two-thirds (2/3) majority any regulatory
or restrictive provision regarding the proposed sale, transfer or other
disposition of the corporation's stock by its stockholders or in the event of
the death of any stockholder. Said restrictions shall be binding upon third
parties with actual knowledge thereof or if the same, or notice of the same,
shall be plainly written upon the certificate evidencing ownership of the stock.
ARTICLE XIV
AMENDMENT
Except as may be provided in the By-Laws of this corporation to the
contrary, these Articles of Incorporation may be amended by the affirmative vote
of a majority of the Board of Directors and by the affirmative vote of the
holders of not less than two-thirds (2/3) of the then outstanding stock of the
corporation.
ARTICLE XV
RESIDENT AGENT
The names and addresses of the initial resident agent of this
corporation is:
Eric P. Littman
Suite 202
1428 Brickell Avenue
Miami, FL 33131
IN WITNESS WHEREOF, I have hereunto subscribed to and executed these Articles of
Incorporation this 30th day of January, 1989.
/S/Eric P. Littman
----------------------
Eric P. Littman
-3-
<PAGE>
Subscribed and Sworn to this 30th day of January, 1989
Before me:
___________________________
Notary Public
My commission expires:
CERTIFICATE DESIGNATING PLACE OF BUSINESS OR
DOMICILE FOR SERVICE OF PROCESS WITHIN THIS STATE
NAMING THE AGENT UPON WHOM PROCESS MAY BE SERVED
In pursuance of Chapter 48.091 of the Florida of the Florida Statutes,
the following is submitted:
PARK AVENUE MARKETING, INC. desiring to organize a corporation under
the laws of the State of Florida with its principal place of business as stated
in its Articles of Incorporation has named Eric P. Littman located at Suite 202,
1428 Brickall Avenue, Miami, FL 33131 as its agent upon whom process may be
served within this state.
Having been named to accept service of process for the above-stated
corporation, I hereby accept to act in this capacity and to comply with the
provisions of the Act relative to keeping open said office.
/S/ Eric P. Littman
---------------------
Eric P. Littman
-4-
<PAGE>
AMENDMENT TO
ARTICLES OF INCORPORATION
OF
PARK AVENUE MARKETING, INC.
THE UNDERSIGNED, being the sole director of PARK AVENUE MARKETING,
INC., does hereby amend the Articles, of Incorporation of PARK AVENUE MARKETING,
INC., as follows:
SHARES
The capital stock of this corporation shall consist of 50,000,000
shares of common stock, $.001 par value.
I hereby certify that the following was adopted by a majority unanimous
vote of the shareholders and directors of the corporation on June 18, 1997 and
that the number of votes cast was sufficient for approval.
IN WITNESS WHEREOF, I have hereunto subscribed to and executed this
Amendment to Articles of Incorporation this on June 19,1997.
/S/ Eric P. Littman
- --------------------------------------------
Eric P. Littman, President and Sole Director
Subscribed and Sworn on this 19th day of June, 1997, Before me:
___________________________
Notary Public
My Commission Expires:
-5-
<PAGE>
ARTICLES OF AMENDMENT'
TO THE
ARTICLES OF INCORPORATION
OF
PARK AVENUE MARKETING, INC.
Pursuant to Section 607.1006 of the Business Corporation Act of the
State of Florida, the undersigned President of Park Avenue Marketing, Inc.
("Corporation"), a corporation organized and existing under and by virtue of the
Business Corporation Act of the State of Florida does hereby certify:
First: That pursuant to Written Consent of the Board of Directors and
Majority Shareholders of said Corporation dated February 2, 1998, the
Shareholders and Directors approved the amendment to the Corporation's Articles
of Incorporation as follows:
Articles I, III of the Articles of Incorporation of this Corporation is
amended to I its entirety as follows:
ARTICLE I
The name of the company is "BSD Healthcare Industries, Inc."
ARTICLE III
The maximum number of shares that this Corporation shall be authorized
to issue and have outstanding at any one time shall be 50,000,000 shares of
Common Stock, par value $.001 per share and 5,000,000 shares of Preferred Stock,
par value $.001 per share. Series of the Preferred Stock may be created and
issued from time to time, with such designations, preferences, conversion
rights, cumulative, relative, participating, optional or other rights, including
voting rights, qualifications, limitations or restrictions thereof as shall be
stated and expressed in the resolution or resolutions providing for the creation
and issuance of such series of Preferred Stock as adopted by the Board of
Directors pursuant to the authority in this paragraph given.
Effective upon the Corporation filing this Amendment to the Articles of
Incorporation ("Effective Date"), each 14.5 shares of Common Stock, $.001 par
value per share, outstanding on the Effective Date will be changed into one (1)
fully paid and nonassessable share of Common Stock, $.001 par value per share;
and that after the effective date of the Amendment, each holder of record of one
or more certificates representing shares of the old Common Stock shall be
entitled to receive one or more certificates representing the proportionate
number of shares of new Common Stock on surrender of a stockholder's old
certificates for cancellation. If a stockholder shall be entitled to a number of
new shares of Common Stock which is not a whole number, then the number of new
shares of Common Stock issued to the Stockholder shall be rounded upward to the
nearest whole number.
-6-
<PAGE>
The foregoing amendment was adopted by the Board of Directors and
Majority shareholders of the Corporation pursuant to Written Consent of the
Board of Directors and Majority Shareholders of the Corporation dated February
2, 1998 acting unanimously by Written Consent pursuant to Sections 607.0704 and
607.0821 of the Florida Business Corporation Act.
Therefore, the number of votes cast for the amendment to the
Corporation's Certificate of Incorporation was sufficient for approval.
IN WITNESS WHEREOF, the undersigned, being the Secretary of this
Corporation, has executed these Articles of Amendment as of February 2, 1998.
PARK AVENUE MARKETING, INC.
By: /S/ Stephen Rosedale
-------------------------------
Stephen Rosedale, President
-7-
<PAGE>
AMENDED
ARTICLES OF INCORPORATION
OF
BSD HEALTHCARE INDUSTRIES, INC.
Pursuant to Section 607.1006 of the Business Corporation Act of the
State of Florida, the undersigned President of BSD Healthcare Industries, Inc.,
a corporation organized and existing under and by virtue of the Business
Corporation Act of the State of Florida bearing Document #K63718 (hereinafter
the "Corporation"), and desiring to amend and restate its Articles of
Incorporation, does hereby certify:
That pursuant to the authority conferred upon the Board of Directors by
the Articles of Incorporation of the Corporation, the Board of Directors on July
6, 1998, adopted a resolution authorizing, an amendment to the articles of
incorporation of the Corporation creating a series of preferred stock entitled
Series A Preferred Stock, $.001 par value per share as follows:
ARTICLE III
CAPITAL STOCK
The maximum number of shares of stock that this Corporation is
authorized to issue and have outstanding at any one time shall be Fifty Million
(50,000,000) shares of Common Stock having a par value of $.001 per share and
Two Million Five Hundred Thousand (5,000,000) shares of Preferred Stock having a
par value of $.001 per share. The designations, preferences, limitations and
relative rights of the shares of each class of Common Stock and of Preferred
Stock shall be as determined by the Board of Directors of the Corporation. The
Board of Directors of the Corporation desires, pursuant to its authority as
aforesaid, to determine and fix the rights, preferences, privileges and
restrictions relating to a class of said Preferred Stock as follows:
1. Designation and Amount. The shares of such series shall be
designated as the Series A Preferred Stock (the "Series A Preferred Stock") and
shall have a stated value of $1.00 (the "Stated Value") per share, and the
number of shares constituting such series shall be 200,000.
2. Dividends and Distributions. The holders of Series A Preferred Stock
shall be entitled to receive a dividend of seven percent (7%) of the Stated
Value, noncumulative, in dividends declared in any fiscal year before any
dividends are paid upon the common stock of the Corporation.
3. Voting Rights. Except as otherwise provided by law, the holders of
Series A Preferred Stock shall have no voting rights and their consent shall not
be required (except to the extent required by law) for taking any corporate
action.
4. Reacquired Shares. Any Series A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall constitute
authorized but unissued preferred shares and may be reissued as part of a new
series of preferred shares by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein, in the Articles of Incorporation, or in any other Certificate of
Designation creating a series of preferred shares or as otherwise required by
law.
-8-
<PAGE>
5. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made to
the holders of any other securities of the Corporation junior to the Series A
Preferred Stock unless, prior thereto, the holders of Series A Preferred Stock
shall have received $1.00 per share, plus an amount equal to declared and unpaid
dividends thereon to the date of such payment.
6. Consolidation, Merger, Exchange, etc. In case the Corporation shall
enter into any consolidation, merger, combination, statutory share exchange or
other transaction in which the Common Shares are exchanged for or changed into
other stock or securities, money and/or any other property, then in any such
case the Series A Preferred Stock shall at the same time be similarly exchanged
or changed into preferred shares of the surviving entity providing the holders
of such preferred shares with (to the extent possible) the same relative rights
and preferences as the Series A Preferred Stock.
7. Conversion.
(a) The Series A Preferred Stock will be convertible into shares of
Common Stock, $.001 par value, of the Corporation (the "Common Shares") at the
option of the holder or holders thereof (the "Holders") at any time. Shares of
Series A Preferred Stock may be converted into shares of Common Stock of the
Corporation at a ratio of 1:1 (the "Conversion Price"). All notices of
conversion and other notices given by the Holder or the Corporation pursuant to
this Certificate may be given by telephone line facsimile transmission and must
be received by 5:00 p.m. (based on the recipient's local time) on the applicable
business day when such notice is due. Such notices shall only be effective upon
receipt thereof by the Corporation.
(b) In connection with any conversion of the Series A Preferred Stock
by a Holder the Corporation shall issue and deliver to the Holder a legended
certificate or certificates for the number of Common Shares to which the Holder
shall be entitled within 15 business days (the "Deadline") after receipt by the
Corporation of the duly executed notice of conversion and the original Series A
Preferred Stock being converted, with an executed stock power.
(c) If, prior to the date on which all shares of Series A Preferred
Stock are converted, the Corporation shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares of Common Shares or (iv) issue by a reclassification of
its Common Stock other securities of the Corporation, the Conversion Price in
effect on the opening of business on the record date for determining
shareholders entitled to participate in such transaction shall thereupon be
adjusted, or, if necessary, the right to convert shall be amended, such that the
number of shares of Common Stock receivable upon conversion of the shares of
Series A Preferred Stock immediately prior thereto shall be adjusted so that the
Series A Holder shall be entitled to receive, upon the conversion of such shares
of Series A Preferred Stock, the kind and number of shares of Common Stock or
other securities of the Corporation which it would have owned or would have been
entitled to receive after the happening of any of the events described above had
the Series A Preferred Stock been converted immediately prior to the happening
of such event or any record date with respect thereto. Any adjustment made
pursuant to this subparagraph 7(c) shall become effective immediately after the
effective date of such event and such adjustment shall be retroactive to the
record date, if any, for such event.
-9-
<PAGE>
8. Redemption. The Series A Preferred Stock may be redeemed by the
Corporation at any time by payment of a redemption price of $1.00 per share.
9. Vote to Change the Terms of Series A Preferred Stock. The Approval
of the Board of Directors and the affirmative vote at a meeting duly called by
the Board of Directors for such purpose (or the written consent without a
meeting) of the holders of not less than two-thirds (2/3) of the then
outstanding Series A Preferred Stock shall be required to amend, alter, change
or repeal any of the powers, designations, preferences and rights of the Series
A Preferred Stock.
IN WITNESS WHEREOF, I have executed this Amended Articles of
Incorporation this 6th day of July, 1998.
/S/ Stephen Rosedale
---------------------------
Stephen Rosedale, President
-10-
<PAGE>
Exhibit 3.2
BY-LAWS
of
BSD HEALTHCARE INDUSTRIES, INC.
----------------------------------------------------
ARTICLE XVI
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders of
this corporation shall be held on the 30th day of June of each year or at such
other time and place designated by the Board of Directors of the corporation.
Business transacted at the annual meeting shall include the election of
directors of the corporation. If the designated day shall fall on a Sunday or
legal holiday, then the meeting shall be held on the first business day
thereafter.
Section 2. Special Meeting. Special meetings of the shareholders shall
be held when directed by the President or the Board of Directors, or when
requested in writing by the holders of not less than 10% of all the shares
entitled to vote at the meeting. A meeting requested by shareholders shall be
called for a date not less than 3 nor more than 30 days after the request is
made, unless the shareholders requesting the meeting designate a later date. The
call for the meeting shall be issued by the Secretary, unless the President.
Board of Directors, or shareholders requesting the meeting shall designate
another person to do so.
Section 3. Place. Meetings of shareholders shall be held at the
principal place of business of the corporation or at such other place as may be
designated by the Board of Directors.
Section 4. Notice. Written notice stating the place, day and hour of
the meeting and in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than 3 nor more than 30
days before the meeting, either personally or by first class mail, or by the
direction of the President, the Secretary or the officer or persons calling the
meeting to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
Section 5. Notice of Adjourned Meeting. When a meeting is adjourned to
another time or place, it shall not be necessary to give any notice of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting, If, however, after the adjourriment the Board of
Directors fixes a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be given as provided in this Article to each shareholder
of record on a new record date entitled to vote at such meeting.
-1-
<PAGE>
Section 6. Shareholder Quorum and Voting. A majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If a quorum is present, the affirmative vote of a
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders unless otherwise provided by
law.
Section 7. Voting of Shares. Each outstanding share shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders.
Section 8. Proxies. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or his duly authorized attorney-in-fact.
No proxy shall be valid after the duration of 11 months from the date thereof
unless otherwise provided in the proxy.
Section 9. Action by Shareholders Without a Meeting. Any action
required by law or authorized by these by-laws or the Articles of Incorporation
of this corporation or taken or to be taken at any annual or special meeting of
shareholders, or any action which may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
ARTICLE XVII
DIRECTORS
Section 1. Function. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board of Directors.
Section 2. Qualification. Directors need not be residents of this state
or shareholders of this corporation.
Section 3. Compensation. The Board of Directors shall have authority to
fix the compensation of directors.
Section 4. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless he
votes against such action or abstains from voting in respect thereto because of
an asserted conflict of interest.
Section 5. Number. This corporation shall have a minimum of 1 director
but no more than 7.
Section 6. Election and Term. Each person named in the Articles of
Incorporation as a member of the initial Board of Directors shall hold office
until the first annual meeting of shareholders, and until his successor shall
have been elected and qualified or until his earlier resignation, removal from
office or death. At the first annual meeting of shareholders and at each annual
meeting thereafter the shareholders shall elect directors to hold office until
the next succeeding annual meeting. Each director shall hold office for a term
for which he is elected and until his successor shall have been elected and
qualified or until his earlier resignation, removal from office or death.
-2-
<PAGE>
Section 7. Vacancies. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
Directors, may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall hold office only until the next election of
directors by the shareholders.
Section 8. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director or the entire Board of Directors may be
removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote at an election of directors.
Section 9. Quorum and Voting. A majority of the number of directors
fixed by these by-laws shall constitute a quorum for the transaction of
business. The act of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 10. Executive and Other Committees. The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an executive committee and one or more other committees
each of which. to the extent provided in such resolution shall have and may
exercise all the authority of the Board of Directors, except as is provided by
law.
Section 11. Place of Meeting. Regular and special meetings of the Board
of Directors shall be held at the principal place of business of the corporation
or as otherwise determined by the Directors.
Section 12. Time, Notice and Call of Meetings. Regular meetings of the
Board of Directors shall be held without notice on the first Monday of the
calendar month two (2) months following the end of the corporation's fiscal, or
if the said first Monday is a legal holiday, then on the next business day.
Written notice of the time and place of special meetings of the Board of
Directors shall be given to each director by either personal delivery, telegram
or cablegram at least three (3) days before the meeting or by notice mailed to
the director at least 3 days before the meeting.
Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of business because the meeting is not lawfully called or
convened.
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<PAGE>
Neither the business to be transacted at, nor the purpose, of any
regular or special meeting of the Board of Directors need be specified in the
notice of waiver of notice of such meeting. A majority of the directors present,
whether or not a quorum exists, may adjourn any meeting of the Board of
Directors to another time and place. Notice of any such adjourned meeting shall
be given to the directors who were not present at the time of the adjournment,
and unless the time and place of adjourned meeting are announced at the time of
the adjournment, to the other directors, Meetings of the Board of Directors may
be called by the chairman of the board, by the president of the corporation or
by any two directors.
Members of the Board of Directors may participate in a meeting of such
board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
Section 13. Action Without a Meeting. Any action, required to be taken
at a meeting of the Board of Directors, or any action which may be taken at a
meeting of the Board of Directors or a committee thereof, may be taken without a
meeting if a consent in writing, setting forth the action so to be taken, is
signed by such number of the directors, or such number of the members of the
committee, as the case may be, as would constitute the requisite majority
thereof for the taking of such actions, is filed in the minutes of the
proceedings of the board or of the committee. Such actions shall then be deemed
taken with the same force and effect as though taken at a meeting of such board
or committee whereat all members were present and voting throughout and those
who signed such action shall have voted in the affirmative and all others shall
have voted in the negative. For informational purposes, a copy of such signed
actions shall be mailed to all members of the board or committee who did not
sign said action, provided however, that the failure to mail said notices shall
in no way prejudice the actions of the board or committee.
ARTICLE XVIII
OFFICERS
Section 14. Officers. The officers of this corporation shall consist of
a president, a secretary and a treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers and agents as may
be deemed necessary may be elected or appointed by the Board of Directors from
time to time. Any two or more offices may be held by the same person.
Section 15. Duties. The officers of this corporation shall have the
following duties:
The President shall be the chief executive officer of the
corporation, shall have general and active management of the business and
affairs of the corporation subject to the directions of the Board of Directors,
and shall preside at all meetings of the shareholders and Board of Directors.
-4-
<PAGE>
The Secretary shall have custody of, and maintain, all of the
corporate records except the financial records; shall record the minutes of all
meetings of the shareholders and Board of directors, send all notices of all
meetings and perform such other duties as may be prescribed by the Board of
Directors or the President.
The Treasurer shall have custody of all corporate funds and
financial records, shall keep full and accurate accounts of receipts and
disbursements and render accounts thereof at the annual meetings of shareholders
and whenever else required by the Board of Directors or the President, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President.
Section 16. Removal of Officers. An officer or agent elected or
appointed by the Board of Directors may be removed by the board whenever in its
judgment the best interests of the corporation will be served thereby. Any
vacancy in any office may be filed by the Board of Directors.
ARTICLE XIX
STOCK CERTIFICATES
Section 17. Issuance. Every holder of shares in this corporation shall
be entitled to have a certificate representing all shares to which he is
entitled. No certificate shall be issued for any share until such share is fully
paid.
Section 18. Form. Certificates representing shares in this corporation
shall be signed by the President or Vice President and the Secretary or an
Assistant Secretary and may be sealed with the seal of this corporation or a
facsimile thereof.
Section 19. Transfer of Stock. The corporation shall register a stock
certificate presented to it for transfer if the certificate is properly endorsed
by the holder of record or by his duly authorized attorney.
Section 20. Lost, Stolen or Destroyed Certificate. If the shareholder
shall claim to have lost or destroyed a certificate of shares issued by the
corporation, a new certificate shall be issued upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed, and, at the discretion of the Board of Directors, upon the deposit
of a bond or other indemnity in such amount and with such sureties, if any, as
the board may reasonably require.
ARTICLE XX
BOOKS AND RECORDS
Section 21. Books and Records. This corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders, Board of Directors and committee of directors.
This corporation shall keep at its registered office, or principal
place of business a record of its shareholders, giving the names and addresses
of all shareholders and the number of the shares held by each.
-5-
<PAGE>
Any books, records and minutes may be in written form or in any other
form capable of being converted into written form within a reasonable time.
Section 22. Shareholders' Inspection Rights. Any person who shall have
been a holder of record of shares of voting trust certificates therefor at least
six months immediately preceding his demand or shall be the holder of record of,
or the holder of record of voting trust certificates for, at least five percent
of the outstanding shares of the corporation, upon written demand stating the
purpose thereof, shall have the right to examine, in person or by agent or
attorney, at any reasonable time or times, for any proper purpose its relevant
books and records of accounts, minutes and records of shareholders and to make
extracts therefrom.
Section 23. Financial Information. Not later than four months after the
close of each fiscal year, this corporation shall prepare a balance sheet
showing in reasonable detail the financial condition of the corporation as of
the close of its fiscal year, and a profit and loss statement showing the
results of the operations of the corporation during the fiscal year.
Upon the written request of any shareholder or holder of voting trust
certificates for shares of the corporation, the corporation shall mail to each
shareholder or holder of voting trust certificates a copy of the most recent
such balance sheet and profit and loss statement. The balance sheets and profit
and loss statements shall be filed in the registered office of the corporation
in this state, shall be kept for at least five years, and shall be subject to
inspection during business hours by any shareholder or holder of voting trust
certificates, in person or by agent.
ARTICLE XXI
DIVIDENDS
The Board of Directors of this corporation may, from time to time,
declare and the corporation may pay dividends on its shares in cash, property or
its own shares, except when the corporation is insolvent or when the payment
thereof would render the corporation insolvent subject to the provisions of the
Florida Statutes.
ARTICLE XXII
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be in
circular form.
ARTICLE XXIII
AMENDMENT
These by-laws may be altered, amended or repealed, and new by-laws may
be adopted by the majority vote of the directors of the corporation.
-6-
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