UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-QSB
---------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
COMMISSION FILE NUMBER 0-28566
HENLEY HEALTHCARE, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 76-0335587
(State or other jurisdiction of No.) (IRS Employer Identification
incorporation or organization)
120 INDUSTRIAL BOULEVARD, SUGAR LAND, TEXAS 77478
(Address of principal executive offices)
713-276-7000
(Issuer's telephone number)
Check whether the issuer: (i) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (ii) has been
subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
As of November 13, 1998, the issuer had 5,383,205 shares of common stock
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
<PAGE>
PART I. FINANCIAL INFORMATION
This report includes "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact included in this report are forward looking statements. Such
forward looking statements include, without limitation, statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" regarding the Company's estimate
of sufficiency of existing capital resources and its ability to raise additional
capital to fund cash requirements for future operations and acquisitions.
Although the Company believes the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such expectations
reflected in such forward looking statements will prove to have been correct.
The ability to achieve the Company's expectations is contingent upon a number of
factors which include (i) the Company's ability to manufacture and market its
products commercially, (ii) the Company's ability to successfully integrate
acquired operations, including the recently acquired foreign operations, (iii)
the ability of the Company to fund its current operations with internally
generated funds, (iv) the ability of the Company to raise sufficient capital to
fund its acquisition program, (v) international economic and currency
fluctuations, (vi) the retention of key personnel, (vii) government regulation,
(viii) the actions of the Company's competitors, (ix) the ongoing cost of
research and development activities, and (x) timely approval of the Company's
product candidates by appropriate governmental and regulatory agencies. This
Report may contain trademarks and service marks of other companies.
ITEM 1. FINANCIAL STATEMENTS
The information required hereunder is included in this
report as set forth in the "Index to Financial Statements."
INDEX TO FINANCIAL STATEMENTS
PAGE
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 .................................................... 3
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1998 and 1997 .................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 .......................................... 6
Notes to Consolidated Financial Statements ............................. 7-10
2
<PAGE>
HENLEY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents .............................. $ 999,301 $ 123,620
Accounts receivable, net of allowance for .............. 10,360,493 6,675,800
doubtful accounts of $1,272,059 and
$3,117,888, respectively
Inventory .............................................. 8,788,465 8,147,357
Prepaid expenses ....................................... 595,488 228,165
Other current assets ................................... 219,000 71,960
------------ ------------
TOTAL CURRENT ASSETS ................................. 20,962,747 15,246,902
PROPERTY, PLANT AND EQUIPMENT, net ....................... 7,068,652 3,994,231
GOODWILL AND OTHER INTANGIBLES, net ...................... 22,554,794 5,670,004
OTHER ASSETS, net ........................................ 1,219,350 1,244,580
------------ ------------
TOTAL ASSETS ............................................. $ 51,805,543 $ 26,155,717
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit - bank .................................. $ 8,912,648 $ 7,105,868
Current maturities of long-term debt ................... 617,763 433,763
Accounts payable ....................................... 7,341,525 3,970,270
Accrued expenses and other current liabilities ......... 3,459,804 1,099,572
------------ ------------
TOTAL CURRENT LIABILITIES ................................ 20,331,740 12,609,473
INTEREST PAYABLE ......................................... 178,571 536,667
OTHER LONG-TERM LIABILITIES .............................. 4,745,000 --
LONG-TERM DEBT, net of current maturities ................ 14,090,001 9,466,179
------------ ------------
TOTAL LIABILITIES .................................... 39,345,312 22,612,319
STOCKHOLDERS' EQUITY
Series A preferred stock - $.10 par value; 5,000 shares
authorized; 2,500 and 0 shares issued and outstanding,
respectively ......................................... 2,257,614 --
Series B preferred stock - $.10 par value; 8,000 shares
authorized; 4,700 and 0 shares issued and outstanding,
respectively ......................................... 3,768,139 --
Common stock - $.01 par value; 20,000,000 shares
authorized; 5,662,205 and 3,473,897 shares issued,
respectively ......................................... 56,622 34,739
Additional paid-in-capital ............................. 21,285,483 14,117,078
Cumulative translation adjustment ...................... 374,356 --
Accumulated deficit .................................... (15,055,804) (10,382,240)
Treasury stock, at cost, 279,000 common
shares .............................................. (226,179) (226,179)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ........................... 12,460,231 3,543,398
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 51,805,543 $ 26,155,717
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
HENLEY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
1998 1997
------------ -----------
THREE MONTHS ENDED SEPTEMBER 30,
NET SALES ................................... $ 13,365,436 $ 3,134,149
COST OF SALES ............................... 7,959,874 1,840,658
------------ -----------
GROSS PROFIT ................................ 5,405,562 1,293,491
OPERATING EXPENSES .......................... 5,033,982 1,118,300
------------ -----------
INCOME (LOSS) FROM OPERATIONS ............... 371,580 175,191
INTEREST EXPENSE ............................ 499,160 267,292
OTHER INCOME (EXPENSE), net ................. (743) 53,475
------------ -----------
LOSS FROM CONTINUING OPERATIONS ............. (126,837) (145,576)
------------ -----------
DISCONTINUED OPERATIONS:
LOSS FROM OPERATIONS OF HOMECARE DIVISION . (50,423) (177,732)
EXTRAORDINARY ITEM
LOSS ON DISPOSAL OF HOMECARE OPERATIONS ... (26,367) --
------------ -----------
LOSS FROM DISCONTINUED OPERATIONS ........... (76,790) (177,732)
------------ -----------
NET INCOME (LOSS) ........................... (203,627) 32,156
------------ -----------
PREFERRED STOCK DIVIDENDS ................... 907,884 --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS .............................. $ (1,111,511) $ 32,156
============ ===========
INCOME (LOSS) PER COMMON SHARE - basic and
diluted:
INCOME (LOSS) FROM CONTINUING OPERATIONS
AVAILABLE TO COMMON SHAREHOLDERS ............ $ (0.19) $ (0.05)
INCOME (LOSS) FROM OPERATIONS OF HOMECARE
DIVISION .................................. $ (0.01) $ 0.06
LOSS FROM DISPOSAL OF HOMECARE DIVISION ..... $ (0.01) --
------------ -----------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS .............................. $ (0.21) $ 0.01
============ ===========
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE - basic and diluted ....... 5,383,205 3,093,556
------------ -----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
HENLEY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ............. 1998 1997
------------ -----------
NET SALES ................................... $ 28,854,155 $ 8,739,533
COST OF SALES ............................... 17,447,991 4,920,115
------------ -----------
GROSS PROFIT ................................ 11,406,164 3,819,418
OPERATING EXPENSES .......................... 11,923,891 3,281,233
------------ -----------
INCOME (LOSS) FROM OPERATIONS ............... (517,727) 538,185
INTEREST EXPENSE ............................ 1,264,931 774,304
OTHER (INCOME) EXPENSE, net ................. (20,715) 130,533
------------ -----------
LOSS FROM CONTINUING OPERATIONS ............. (1,761,943) (366,672)
------------ -----------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM OPERATIONS OF HOMECARE
DIVISION .................................. (352,401) 645,705
EXTRAORDINARY ITEM
LOSS ON DISPOSAL OF HOMECARE OPERATIONS ... (978,419) 0
------------ -----------
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS ................................. (1,330,820) 645,705
------------ -----------
NET INCOME (LOSS) ........................... (3,092,763) 279,033
PREFERRED STOCK DIVIDENDS ................... 1,152,730 --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS ............................... $ (4,245,493) $ 279,033
============ ===========
INCOME (LOSS) PER COMMON SHARE - basic
and diluted:
LOSS FROM CONTINUING OPERATIONS
AVAILABLE TO COMMON SHAREHOLDERS .......... $ (0.60) $ (0.13)
INCOME (LOSS) FROM OPERATIONS OF HOMECARE
DIVISION .................................... $ (0.07) $ 0.22
LOSS FROM DISPOSAL OF HOMECARE DIVISION ..... $ (0.20) --
------------ -----------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS ................................ $ (0.87) $ 0.09
============ ===========
INCOME
(LOSS) PER COMMON SHARE - basic and diluted 4,898,817 2,955,184
------------ -----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
HENLEY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, ...................... 1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .................................... $(3,092,763) $ 279,033
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization expense ............ 1,572,941 435,789
Interest expense imputed on notes payable ........ 0 225,167
Bad debt expense ................................. 842,529 1,041,628
Loss on discontinued operations .................. 978,419 --
Changes in operating assets and
liabilities:
Increase in accounts receivable ................ (244,942) (1,580,757)
Decrease (increase) in inventory ............... 530,474 (433,598)
Decrease (increase) in prepaid expenses
and other .................................... (158,069) (375,740)
current assets
Decrease (increase) in other assets ............ (39,253) (157,084)
Decrease in accounts payable, accrued
expenses and other current liabilities ....... (1,443,842) 558,826
----------- -----------
Total adjustments ......................... 2,038,257 (285,769)
----------- -----------
Net cash used in
operating activities ................... (1,054,506) (6,736)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired of $1,140,730 . (672,539) (3,689,641)
Disposal of Homecare ............................. 3,650,000 --
Capital expenditures ............................. (1,685,478) (150,447)
----------- -----------
Net cash used in investing activities ..... (1,291,983) (3,840,088)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock .... 6,545,311 --
Payments on line of credit ....................... (6,747,720) 3,840,570
Dividend Payments ................................ (53,071) --
Proceeds from long-term debit .................... 1,260,000 1,430,000
Principal payments of long-term debt ............. (366,315) (1,632,850)
----------- -----------
Net cash provided by financing activities . 638,205 3,637,720
----------- -----------
Net increase (decrease) in cash and cash
equivalents ........................................ 875,682 (209,104)
Cash and cash equivalents at beginning of
period ............................................. 123,619 507,892
----------- -----------
Cash and cash equivalents at end of period ........... $ 999,301 $ 298,788
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest ........................................... $ 1,264,931 $ 719,543
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
HENLEY HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited interim consolidated financial statements of
Henley Healthcare, Inc. (the "Company"), have been prepared in accordance with
generally accepted accounting principles and the rules of the Securities and
Exchange Commission (the "SEC"), and should be read in conjunction with the
audited consolidated financial statements and notes thereto contained in the
Company's latest Annual Report filed with the SEC on Form 10-KSB, as amended. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
consolidated financial statements, which would substantially duplicate the
disclosure contained in the audited consolidated financial statements for the
most recent fiscal year, 1997, as reported in the Form 10-KSB, have been
omitted.
2. ACQUISITIONS:
In January 1998, the Company acquired all of the issued and outstanding
common stock of Garvey Company, a Minnesota corporation, as a wholly-owned
subsidiary, for an estimated purchase price of approximately $880,000, plus
related acquisition costs of approximately $40,000. The purchase price was paid
by the issuance of 120,308 shares of the Company's common stock. The acquisition
was accounted for as a purchase.
In February, 1998, the Company purchased substantially all of the assets
and assumed certain liabilities associated with AMC Acquisition Corp., a Texas
corporation, for an estimated purchase price of approximately $450,000, plus
related acquisition costs of approximately $30,000. The purchase price was paid
by the issuance of 68,000 shares of common stock. The acquisition was accounted
for as a purchase.
On May 29, 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Enraf-Nonius, B.V. ("Enraf"), a wholly-owned
subsidiary of Delft Instruments N.V. ("Delft"). Enraf specializes in the
development, manufacture and sale of medical products, including ultra-sound and
electrical stimulation, used in pain management, physical therapy and
rehabilitation. The purchase price for Enraf was approximately $15 million plus
acquisition costs of approximately $1 million. The purchase was financed with
short and long term notes totaling approximately $7 million from Delft and $8
million from bank financing. The short-term notes were repaid by the Series B
Preferred Offerings that were funded in July and August 1998. The acquisition
was accounted for as a purchase.
The purchase price for Enraf has been allocated as follows:
Purchase price $15,000,000
Acquisition costs 1,000,000
-----------
16,000,000
-----------
FV of assets acquired 12,000,000
FV of liabilities assumed (13,000,000)
-----------
Net liabilities acquired ( 1,000,000)
-----------
Excess of cost over fair value of
net liabilities acquired
(goodwill) $17,000,000
===========
The purchase allocation above is preliminary in nature pending the ultimate
resolution of contingencies related to the contemplated sale by the Company of
certain assets acquired in the purchase of Enraf-Nonius. Estimates have been
made, and included in the purchase allocation, regarding the difference between
the expected proceeds from the sales and the fair market values of the related
net assets. To the extent the actual amounts differ from these estimates the net
assets and goodwill amounts recorded will be adjusted accordingly.
The following summarized pro forma (unaudited) information assumes the
acquisition of Enraf had occurred on January 1, 1998
For 9 months ended
September 30, 1998
Net sales ................... $ 44,070,077
Net loss .................... $ (6,682,846)
Net loss per common share ... $ (1.36)
The above pro forma amounts reflect adjustments for interest related to
financing the Enraf-Nonius acquisition, amortization of goodwill, and royalty
expense.
3. DISCONTINUED OPERATIONS:
On August 11, 1998, the Company sold all of its assets related to its
Homecare operations, including accounts receivable, inventory and property and
equipment, for $3,650,000 in cash and the assumption of certain related
liabilities. Proceeds from the sale were used to pay down existing bank debt
with Comerica Bank. The results of the
7
<PAGE>
Homecare division have been reported separately as discontinued operations and
the $978,000 excess of the recorded values of the assets sold over the proceeds
from sale has been recorded as loss on sale of discontinued operations. Prior
year consolidated financial statements have been restated to present the
Homecare business as discontinued. Revenues for the Homecare division were
$3,626,830 and $7,115,428 for the nine months ended September 30, 1998 and 1997,
respectively.
4. FINANCINGS:
In February 1998, the Company entered into an agreement with Maxxim
Medical, Inc. ("Maxxim") whereby it acquired from Maxxim an office/warehouse
building located at 140 Industrial Boulevard, Sugar Land, Texas, for a purchase
price of approximately $1.2 million. The purchase price was paid in cash which
the Company obtained pursuant to an increase in its Line of Credit ("Line of
Credit") in connection with the second amendment of its Amended Loan Agreement
("Second Amendment") with Comerica Bank-Texas, a Texas banking corporation
("Comerica"). In connection with the Second Amendment with Comerica, the Company
obtained a Term Note C in the principal amount of $1,260,000 with a maturity
date of February 12, 2013. Term Note C bears interest at the Prime Rate plus
one-half of one percent per annum, is payable in monthly principal installments
of $7,000 plus all accrued interest thereon and subject to the terms and
conditions of the Amended Loan Agreement with Comerica. All of the borrowings
from Comerica are secured by substantially all of the assets of the Company.
On February 20, 1998 and March 13, 1998, the Company entered into
agreements with Maxxim pursuant to which Maxxim converted an aggregate of
$4,000,000 outstanding under its convertible promissory note (the "Note") into
an aggregate of 2,000,000 shares of the Company's common stock, par value $.01
per share. The conversions were based on the current conversion price of $2.00
per share under the Note. The agreements also provide that the entire $4 million
conversion shall be applied to the Company's full redemption obligation due in
the year 2003 and partially to the Company's redemption obligation due in the
year 2002 as provided in the Note. The Company has filed a registration
statement covering the resale of the shares of Common Stock issued to Maxxim as
a result of the conversions described above.
In March and April 1998, the Company entered into agreements with certain
private institutional investors pursuant to which the Company issued to the
investors a total of 2,500 shares of its Series A Convertible Preferred Stock
(the "Series A Preferred Stock") for net proceeds of approximately $2.2 million
in cash. The Series A Preferred Stock is convertible into Henley's Common Stock
at the lesser of (i) 75% of the average closing bid price for Henley's Common
Stock as reported by Nasdaq for the 5 trading days prior to conversion or (ii)
$7.125 for the 1,825 shares issued in March and $6.375 for the 675 shares issued
in April. For so long as the Company is listed on The Nasdaq SmallCap or
National Markets or any national securities exchange, the conversion price shall
not be lower than $2.90. In addition, the Company may, at its option, redeem the
Series A Preferred Stock by paying 130% of the purchase price. The Series A
Preferred Stock shall pay an annual dividend of 4%, payable quarterly on each
subsequent March 31st, June 30th, September 30th and December 31st, in cash or
shares of Common Stock at the Company's option. In connection with the
agreement, the Company also issued to the investors 5-year warrants to purchase
an aggregate of 200,000 shares of the Company's Common Stock at exercise prices
ranging from $6.375 to $9.619. The warrants have been recorded at an estimated
fair value of $825,541, which was computed using the Black-Scholes option
pricing model and the following assumptions: risk free interest rate ranging
from 5.54 percent to 5.56 percent; expected dividend yield of zero; expected
life of five years; and an expected volatility of 70 percent.
As a result of the guaranteed discount, the Company will incur a deemed
dividend in the future for the conversion of the Series A Preferred Stock. Such
dividend is calculated as the discount over fair market value as of the date the
Series A Preferred Stock was sold to the investors. This aggregate discount
amount of $833,333 has been treated as a dividend to the holders of the Series A
Preferred Stock and has been recorded during the third quarter of 1998. The
Company has filed a registration statement covering the resale of the shares of
Common Stock issuable upon the conversion of the Series A Preferred Stock and
exercise of the warrants sold to the investors described above. The terms of the
Series A Preferred Stock required that the Company have the Common Stock
issuable upon conversion of the Series A Preferred Stock registered within 100
days of the funding of the Preferred Stock or face penalties of two to three
percent of the amount funded for each 30 day period beyond the 100 day deadline
that such Common Stock
8
<PAGE>
is not registered. The Company has recognized $375,000 of such penalties as
dividends on the Series A Preferred Stock during the quarter ended September 30,
1998. This amount includes all penalties to be incurred through November 20,
1998. The Company anticipates having the shares registered before incurring any
additional penalties.
In July and August, the Company entered into two agreements with certain
private institutional investors pursuant to which the Company issued to the
investors a total of 4,700 shares of its Series B Convertible Preferred Stock
(the "Series B Preferred Stock") for net proceeds of approximately $4.3 million
in cash. Proceeds from the issuance were used to repay short-term notes to Delft
in connection with the Enraf-Nonius acquisition.
The Series B Preferred Stock is convertible into Henley's Common Stock at
the lesser of (i) 110% of the average closing bid price for Henley's Common
Stock as reported by Nasdaq for the 5 trading days prior to issuance date
($5.4425 for 2,500 shares of Series B Preferred Stock sold on July 1, 1998, and
$5.175 for 2,200 shares of Series B Preferred Stock sold on August 10, 1998) or
(ii) 87% of the average bid price for any 3 consecutive days of the 20 days
prior to conversion. Provided however, that for so long as the Company meets
certain quarterly and annual net income and revenue criteria, the conversion
price shall not be lower than $3.50. The Series B Preferred Stock shall bear no
dividend. In connection with the agreement, the Company also issued to the
investors 5-year warrants to purchase an aggregate of 235,000 shares of the
Company's Common Stock at exercise prices ranging from $5.87 to 6.00. The
warrants have been recorded at an estimated fair value of $846,747, which was
computed using the Black-Scholes option pricing model and the following
assumptions: risk free interest rate ranging from 5.37 percent to 5.51 percent;
expected dividend yield of zero; expected life of three years and four months;
and an expected volatility range of 62 percent to 65 percent. The Company has
filed a registration statement covering the resale of the shares of Common Stock
issuable upon the conversion of the Series B Preferred Stock and exercise of the
warrants sold to the investors described above.
As a result of the guaranteed discount, the Company will incur a deemed
dividend in the future for the conversion of the Series B Preferred Stock. Such
dividend is calculated as the discount over fair market value as of the date the
Series B Preferred Stock was sold to the investors. This discount amount of
$702,000 will be treated as a dividend to the holders of the Series B Preferred
Stock and will be recorded ratably until the filing of a registration statement
registering the shares of Common Stock to be issued upon conversion of the
Series B Preferred Stock which is the first date upon which the Series B
Preferred Stock can be converted. For the three months ended September 30, 1998,
the deemed dividend amounted to approximately $319,397.
5. COMMITMENTS:
In connection with the acquisition of Enraf-Nonius, B.V., the Company
entered into certain long-term agreements with Delft Instruments, B.V. (Delft)
and it's subsidiaries. The Company committed to a seven-year $4.5 million
subordinated note which bears interest at 4% for the first year and 5%
thereafter, and is payable in equal semi-annual installments over the last five
years. Other agreements include operating leases that are generally for
seven-year terms and require aggregate lease payments of approximately $3
million. Management believes the leases approximate market rates. The Company
also entered into a seven year $1.6 million note with Delft to fund the pension
liability of the German subsidiary of Enraf. This note will bear interest equal
to the German Pension interest rates at the time of funding (4.5% at September
30, 1998). The Company is committed to maintain its production facilities at
Delft's facilities for a seven-year term. If the Company fails to maintain its
production at these facilities operating at certain production levels, the
Company would be required to reimburse Delft up to $2 million dollars of
reorganization costs at such facilities.
6. NET INCOME PER COMMON SHARE:
The Company adopted SFAS No. 128, which requires the presentation of both
basic and diluted earnings per common share. Basic earnings per common share is
based on the weighted average number of common shares outstanding during the
period, while diluted earnings per common share considers the dilutive effect of
stock options and warrants reflected under the treasury stock method. The common
shares resulting from the assumed conversion of the Preferred Stock at the time
of issuance (which are considered under the if-converted method) and the
Company's
9
<PAGE>
outstanding stock options and warrants have not been included in the calculation
because their effect would be anti-dilutive. As a result, both basic and diluted
earnings per common share are the same.
7. Accrued Liabilities
Accrued liabilities are comprised of the following:
Sept. 30, 1998
--------------
Payroll and related costs $1,671,247
Taxes, other than payroll and income 443,100
Other 1,345,557
----------
3,459,804
----------
7. RECENT ACCOUNTING PRONOUNCEMENTS:
Effective January 1, 1998, the Company adopted Financial Accounting
Standards No. 130,"Reporting Comprehensive Income." Statement No. 130
establishes standards for reporting comprehensive income and its components.
Comprehensive income is the total of net income and all other non-owner changes
in equity. For the three and nine months ended September 30, 1998, the Company
had comprehensive income (loss) of $170,729 and ($2,718,407), respectively,
consisting of net income (loss) and foreign currency translation adjustment. For
the three and nine months ended September 30, 1997, the only component of
comprehensive income for the Company is net income. Adopting Statement No. 130
did not have a material effect on the Company's financial position or results of
operations.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company's principal business strategies are to (i) expand distribution
channels and explore new markets, (ii) consolidate the highly-fragmented
physical therapy and rehabilitation industry by pursuing strategic acquisitions
that complement existing product lines and increase market share, (iii) maximize
the utilization of existing manufacturing facilities for increased productivity,
(iv) improve profitability, (v) reduce long-term indebtedness, and (vi) seek
market clearance from the U.S. Food and Drug Administration for the MicroLight
830(TM).
Prior to April 30, 1996, the Company was primarily engaged in the development
and application for marketing clearance of the MicroLight 830(TM). Beginning
with the acquisition of Maxxim's Henley Division, the Company has pursued a
strategy of consolidating the highly fragmented physical therapy and
rehabilitation industry. Since that time, the Company has grown significantly as
a result of additional acquisitions. All acquisitions have been accounted for
under the purchase method of accounting for business combinations and
accordingly, the results of operations for such acquisitions are included in the
Company's financial statements only from the applicable date of acquisition. As
a result, the Company believes that it's historical results of operations for
the periods presented may not be directly comparable. The Company believes the
historical results of operations do not fully reflect the operating efficiencies
and improvements that are expected to be achieved by integrating the acquired
businesses and product lines, although there can be no assurance that such
efficiencies and improvements will occur.
The Company intends to continue its evaluation of acquisitions, and a period of
rapid growth could place a significant strain on the Company's management,
operations and other resources. There can be no assurance that the Company will
continue to be able to identify attractive or willing acquisition candidates, or
that the Company will be able to acquire such candidates on economically
acceptable terms. The Company's ability to grow through acquisitions and manage
such growth will require the Company to continue to invest in its operational,
financial and management information systems and to attract, retain, motivate
and effectively manage its employees. The inability of the Company's management
to manage growth effectively would have a material adverse effect on the
financial condition, results of operations and business of the Company. As the
Company pursues its acquisition strategy in the future, its financial position
and results of operations may fluctuate significantly from period to period.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and other detailed information contained
in the Company's Annual Report for fiscal year 1997 filed with the SEC on Form
10-KSB.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 VS. NINE MONTHS ENDED SEPTEMBER 30, 1997
Sales increased by approximately 20.2 million, or 230.2%, from $8.7 million for
the nine months ended September 30, 1997 to $28.9 million for the nine months
ended September 30, 1998. The increase in revenues is primarily the result of
increased sales attributable to the acquisition of Med-Quip, Enraf-Nonius and
the Cybex product line. Also contributing to the increase are the effects of
expanded distribution outlets during these periods.
Gross profit increased $7.6 million, or 198.6%, from $3.8 million for the nine
months ended September 30, 1997 to $11.4 million for the nine months ended
September 30, 1998. These increases are principally due to the increases in
revenues described above. As a percentage of revenue, gross profit decreased
from 43.7% for the nine months ended September 30, 1997 to 39.5% for the nine
months ended September 30, 1998. These decreases are primarily the result of two
factors: (i) initial costs of approximately $1.1 million related to integrating
the Cybex product line into existing company facilities, and (ii) the effect of
writing down the Cybex inventory, approximately $0.8 million, to reflect its net
realizable value during the second quarter of 1998. Exclusion of the $1.9
million of non-recurring costs would result in gross profit of 46% for the nine
month period ended September 30, 1998, an increase of 2.4% over the comparable
prior period. This increase is due to an increased relative volume of sales of
Cybex products, which carry a higher gross profit margin.
11
<PAGE>
Operating expenses increased $8.6 million, or 263.4%, from $3.3 million for the
nine months ended September 30, 1997 to $11.9 million for the nine months ended
September 30, 1998. As a percentage of sales, operating expenses increased from
37.5% for the nine months ended September 30, 1997 to 41.3% for the nine months
ended September 30, 1998. The increases in operating expenses are due to the
incremental expenses relating to the selling, general and administrative costs
of integrating Med-Quip, Enraf-Nonius and the Cybex Product Line into the
Company's existing operations.
Interest charges increased $491,000, or 63.4%, from $774,000 for the nine months
ended September 30, 1997 to $1,265,000 million for the nine months ended
September 30, 1998. The overall increase in interest expense is primarily due to
the interest bearing notes issued to finance some of the Company's acquisitions.
However during August 1998, the Company used the proceeds of the Series B
Preferred Stock Private Placement to pay off approximately $4.3 million of the
short term debt associated with the acquisition of Enraf-Nonius and used the
proceeds from the sale of its Homecare assets to reduce the outstanding balance
of the Company's Line of Credit.
During the third quarter of 1998, the Company sold its Homecare division's
assets for proceeds of $3.65 million. The assets sold had a book value of
approximately $4.63 million. As a result of the sale the Company was required to
recognize a loss of approximately $0.98 million. This sale should reduce the
need for future large bad debt expenses such as those incurred in 1997 and the
first six months of 1998.
As a result of the forgoing, the Company reported net losses of approximately
$3.1 million for the nine months ended September 30, 1998 compared to net income
of approximately $279,000 million for the same period in 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1998 VS. THREE MONTHS ENDED SEPTEMBER 30, 1997
Sales increased by approximately 10.2 million, or 326.4%, from $3.1 million for
the three months ended September 30, 1997 to $13.3 million for the three months
ended September 30, 1998. The increase in revenues is primarily the result of
increased sales attributable to the acquisition of Med-Quip, Enraf-Nonius and
the Cybex product line. Also contributing to the increase are the effects of
expanded distribution outlets during these periods.
Gross profit increased $4.1 million, or 317.9%, from $1.3 million for the three
months ended September 30, 1997 to $5.4 million for the three months ended
September 30, 1998. These increases are principally due to the increases in
revenues described above. As a percentage of revenue, gross profit remained
fairly constant decreasing 0.9% from 41.3% for the three months ended September
30, 1997 to 40.4% for the three months ended September 30, 1998.
Operating expenses increased $3.9 million, or 350.1%, from $1.1 million for the
three months ended September 30, 1997 to $5.0 million for the three months ended
September 30, 1998. As a percentage of sales, operating expenses increased from
35.7% for the three months ended September 30, 1997 to 37.7% for the three
months ended September 30, 1998. The increases in operating expenses are due to
the incremental expenses relating to the selling, general and administrative
costs of integrating Med-Quip, Enraf-Nonius and the Cybex Product Line into the
Company's existing operations. In June 1998, the Company implemented cost
reductions to improve profitability. These reductions included an 8% pay
reduction for all employees, an increase in employee contribution into health
benefits; discontinuance of the Company 401(k) matching contribution, plus other
various internal cost cuts. As a result of the cost reductions, the Company's
operating expenses for the quarter ended September 30, 1998 are down to 37.7%
from 44.5% for the six months ended June 30, 1998.
Interest charges increased $232,000, or 86.7%, from $267,000 for the three
months ended September 30, 1997 to $499,000 for the three months ended September
30, 1998. The overall increase in interest expense is primarily due to the
interest bearing notes issued to finance some of the Company's acquisitions.
However, during August 1998, the Company used the proceeds of the Series B
Preferred Stock Private Placement to pay off approximately $4.3 million of the
short term debt associated with the acquisition of Enraf-Nonius and used the
proceeds from the sale of its Homecare assets to reduce the outstanding balance
of the Company's Line of Credit. As a result, interest charges for the three
months ended September 30, 1998 decreased to $499,000 as compared to $1,265,000
for the six months ended June 30, 1998.
12
<PAGE>
As a result of the forgoing, the Company reported net losses of approximately
$204,000 for the three months ended September 30, 1998 compared to net income of
approximately $32,000 for the same period in 1997.
EXPECTED IMPACT OF ENRAF ACQUISITION ON PROFITABILITY
With the acquisition of Enraf, the Company expects to add approximately
$30.0 million to annual sales. Historically, Enraf has experienced chronic
operating losses due to operating expenses exceeding the related revenue base.
The Company's management has identified numerous areas in which it believes it
can significantly reduce Enraf's historical level of operating costs while also
creating a synergistic effect of combining Enraf's distribution network with the
Company's existing product lines to increase revenue and gross profit.
Specifically, management has implemented plans to: (1) reduce excessive research
and development, marketing and consultant costs from which Enraf had not been
generating an adequate return; (2) reallocate certain technical expertise
included in Enraf's workforce to enhance the continued development of certain of
Henley's core products; and (3) dispose of certain operations of Enraf that have
historically incurred operating losses. The results of the Company's initiatives
with respect to improving profitability at Enraf have been evidenced in Enraf's
operating results since acquisition. During the four-month period from
acquisition through September 30, 1998 Enraf has generated revenues of $9.7
million which contributed gross profit of $3.8 million or 39.1% and net income
of $253,000 or 2.6%. Operating expenses for the four-month period ended
September 30, 1998 were approximately $3.3 million or 33.7% as compared to 59.4%
and 58.2% for the six months ended June 30, 1998 and the year ended December 31,
1997 respectively.
Effective January 1, 1999, Enraf will assume the European, Australian, and
African sales and marketing of Henley's core products. The international sales
of Henley's core products should increase because of the established
distribution system of Enraf. Henley, in turn, will be adding Enraf's sound and
stim products to their line of products available in the United States, Mexico,
South America and Asia.
Management believes that the successful implementation of cost reductions
and the potential synergies to be gained by combining Henley's product pipeline
with Enraf's international distribution system will enable Enraf to generate
positive cash flow to sustain its operations and to service the related
acquisition debt.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash and cash equivalents in the
amount of $1.0 million compared with cash and cash equivalents of $123,620 at
December 31, 1997. The increase in cash and cash equivalents was primarily from
the acquisition of Enraf-Nonius as cash provided by financing activities has
been used to fund operating and investing activities. At September 30, 1998, the
Company had working capital of approximately $0.63 million and its current ratio
was 1.03 to 1 as compared to working capital of $2.6 million and 1.2 to 1 at
December 31, 1997. This decrease in the current ratio is primarily due to the
increase in the amount of debt classified as current associated with the
Enraf-Nonius purchase. At September 30, 1998, the Company had no material
capital expenditure commitments.
Between March and April 1998, the Company sold an aggregate of 2,500 shares of
the Preferred Stock at $1,000 per share in private offerings, resulting in net
cash proceeds of approximately $2.3 million. The Series A Preferred Stock is
convertible into the Company's common stock at the lesser of (i) 75% of the
average closing bid price for the Company's common stock as reported on The
Nasdaq SmallCap Market for the 5 trading days prior to conversion, or (ii)
$7.125 for the 1,825 shares sold in March and $6.375 for the 675 shares sold in
April. For so long as the Company is listed on The Nasdaq SmallCap or National
Markets or any national securities exchange, the conversion price shall not be
lower than $2.90. In addition, the Company may, at its option, redeem the Series
A Preferred Stock by paying 130% of the purchase price. The Series A Preferred
Stock shall pay an annual dividend of 4%, payable quarterly on each subsequent
March 31st, June 30th, September 30th and December 31st, in cash or shares of
Common Stock at the Company's option. In connection with the agreement, the
Company also issued to the investors 5-year warrants to purchase an aggregate of
200,000 shares of the Company's Common Stock at exercise prices ranging from
$6.375 to $9.619. No value was assigned to the warrants as the value was
immaterial. Proceeds from the issuance were used to reduce the outstanding
balance under the Company's Line of Credit with Comerica. The Company has filed
a registration statement covering the resale of the shares of Common Stock
issuable upon the conversion of the Series A Preferred Stock and exercise of the
warrants sold to the investors.
On July 1, 1998, the Company sold in a private placement 2,500 units ("Series B
Units") consisting of (i) one share of the Company's Series B Convertible
Preferred Stock, and (ii) a warrant to acquire 50 shares of Common Stock, for a
purchase price of $1,000 per unit, to Zanett Lombardier, Ltd. ("Lombardier"), an
accredited investor. In addition, The Zanett Securities Corporation, the
placement agent, received warrants to acquire 67,308 shares with the same terms
as the warrants sold to Lombardier. (See Footnotes to Consolidated Financial
Statements). Proceeds were used to repay short term notes to Delft Instruments
in connection with the Enraf-Nonius acquisition.
On August 10, 1998, the Company sold in a private placement 2,200 additional
Series B Units, for a purchase price of $1,000 per unit, to Lombardier, Goldman
Sachs Performance Partners, L.P. and Goldman Sachs Performance Partners
(Offshore), L.P., each an accredited investor. In addition, The Zanett
Securities Corporation, the placement agent, received warrants to acquire 59,231
shares with the same terms as the warrants sold to the other purchasers. (See
Footnotes to Consolidated Financial Statements). Proceeds were used to repay
short term notes to Delft in connection with the Enraf-Nonius Acquisition.
The Company has filed a registration statement covering the shares to be issued
upon conversion of the Series B Preferred Stock and the associated warrants.
The Year 2000 (the "Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment, software and other devices with imbedded technology that are
time-sensitive, such as products, alarm systems and telephone systems, may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, temporary inability to process data,
and may materially impact the Company's financial condition.
The Company has undertaken various initiatives intended to ensure that it is
prepared for the Y2K issue. The Company is in the process of assessing its state
of readiness. Presently, the Company is reviewing its scientific equipment,
13
<PAGE>
computer systems and related software to identify and determine the Y2K
readiness of the Company's systems. This review is being performed by internal
teams from various disciplines within the Company. These teams are currently
evaluating the Company's Y2K issues, and, if necessary, developing remediation
plans. As a part of this review the Company will determine the known risks
related to the consequences of a failure to correct any Y2K deficiencies. The
Company has not initiated formal communications with material third parties to
determine the extent to which the Company may be vulnerable to those third
parties' failure to remediate their Y2K problems. However, the Company is
presently not aware of any Y2K issues that have been encountered by any third
party, which could materially affect the Company's operations.
If necessary, during 1999, the Company will develop a contingency plan to
address potential Y2K issues. This contingency plan will likely address problems
that the Company identifies during the course of its remediation efforts and
reasonably foreseeable problems that may arise as a result of Y2K, including,
but not limited to the performance of the Company's computer system. The
contingency plan will be continually refined, as additional information becomes
available. However, it is unlikely that any contingency plan can fully address
all events that may arise.
The Company estimates that the costs associated with the Y2K issue will not be
material, and as such will not have a significant impact on the Company's
financial position or operating results. However, the failure to correct a
material Y2K problem could result in an interruption in the Company's normal
business activities or operations. Such failure could materially and adversely
affect the Company's results of operation, liquidity and financial condition.
The European Union's adoption of the Euro single currency raises a variety of
issues associated with the Company's Enraf operations. Although the transition
will be phased in over several years, the Euro will become Europe's single
currency on January 1, 1999. The Company is assessing Euro issues related to its
product pricing, contract, treasury operations and accounting systems. Although
the evaluation of these items is still in process, the Company believes that the
hardware and software systems it uses internally will accommodate this
transition and any required policy or operating changes will not have a material
adverse effect on future results.
The Company's current sources of liquidity consist primarily of (i) funds from
operations, (ii) proceeds from the sale of the Series B Preferred Stock for net
proceeds of $4.3 million in July and August 1998, and (iii) the amounts, if any,
available under the Line of Credit with Comerica. As of September 30, 1998, the
Company had approximately $235,000 in availability under the Line of Credit.
Due to the various steps taken by management which include the cost reductions
referred to in the Results of Operations, the disposal of its Homecare
operations and the Series B Preferred Stock offerings, management believes that
funds generated by operations and the Company's existing credit facilities
should be sufficient to meet the Company's capital requirements for the
immediate future. However, the Company will need to obtain significant
additional capital to finance its acquisition strategy. If the Company's
operating cash flows are inadequate or if the Company is unable to obtain
sufficient financing, there can be no assurance that the Company will be able to
successfully fund its current operations or implement its acquisition strategy.
The Company believes that its success in obtaining the necessary financing will
depend upon, among other factors, successfully operating the recently acquired
businesses. Sources of additional financing may include additional bank debt or
the public or private sale of equity or debt securities. There can be no
assurance that the Company will be successful in arranging such financing at all
or on terms commercially acceptable to the Company.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of unregistered securities occurred during the three months
ended September 30, 1998, in private transactions in which the Company relied on
the exemption from registration available under Section 4(2) of the Securities
Act of 1993, as amended, and Rule 506 of Regulation D promulgated thereunder:
On July 1, 1998, the Company sold in a private placement 2,500 units ("Series B
Units") consisting of (i) one share of the Company's Series B Convertible
Preferred Stock, and (ii) a warrant to acquire 50 shares of Common Stock, for a
purchase price of $1,000 per unit, to Zanett Lombardier, Ltd. ("Lombardier"), an
accredited investor. In addition, The Zanett Securities Corporation, the
placement agent, received warrants to acquire 67,308 shares with the same terms
as the warrants sold to Lombardier. (See Footnotes to Consolidated Financial
Statements).
On August 10, 1998, the Company sold in a private placement 2,200 additional
Series B Units, for a purchase price of $1,000 per unit, to Lombardier, Goldman
Sachs Performance Partners, L.P. and Goldman Sachs Performance Partners
(Offshore) L.P., each an accredited investor. In addition, The Zanett Securities
Corporation, the placement agent, received warrants to acquire 59,231 shares
with the same terms as the warrants sold to the other purchasers. (See Footnotes
to Consolidated Financial Statements).
Proceeds from both private placements were used to retire the short term notes
with Delft Instruments issued in connection with the Enraf-Nonius acquisition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on July 17, 1998. The
holders of 4,221,766 shares of the Company's common stock were present at the
meeting in person or by proxy and elected a board of six directors.
The shareholders voted as follows and elected the following persons to serve as
directors of the Company until the next annual meeting of stockholders and until
their successors are duly elected and qualified:
NUMBER OF NUMBER OF
NAME OF DIRECTOR VOTES FOR VOTES WITHHELD
- - ---------------- --------- --------------
Michael M. Barbour 4,216,766 5,000
Chadwick F. Smith, MD 4,216,766 5,000
Dan D. Sudduth 4,216,631 5,135
Pedro A. Rubio. MD, Ph.D. 4,216,766 5,000
Kenneth W. Davidson 4,216,766 5,000
Ernest J. Henley, Ph.D. 4,216,766 5,000
The Company held a special meeting of shareholders on November 6, 1998. The
holders of 3,448,181 shares of the Company's common stock were present at the
meeting in person or by proxy.
The shareholders voted as follows to approve the sale of the Series B Preferred
Stock (See footnotes to Consolidated
Financial Statements):
NUMBER OF NUMBER OF NUMBER OF
VOTES FOR VOTES AGAINST VOTES WITHHELD
--------- ------------- --------------
3,404,681 40,300 3,200
15
<PAGE>
ITEM 5. OTHER INFORMATION
On August 11, 1998, the Company sold all of its assets related to its Homecare
operations, including accounts receivable, inventory and property and equipment,
for $3,650,000 in cash and the assumption of certain related liabilities (See
footnotes to Consolidated Financial Statements).
On October 30, 1998, certain directors, officers and key employees of the
Company purchased 425,000 shares of the Company's common stock from Maxxim
Medical for an aggregate sales price of $1,275,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits, from which schedules and exhibits have been omitted and
will be furnished to the Commission upon its request, are filed with this
Current Report on Form 10-QSB:
EXHIBIT
NO. DESCRIPTION
- - -------- --------------------
2.1 Asset Purchase Agreement by and between Rehabilicare Inc. ("Rehabilicare")
and the Company dated August 6, 1998. (Incorporated herein by reference to
Exhibit 2.3 of the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998 as filed on August 14, 1998.)
3.1 Statement of Designation of Rights and Preferences of the Series B
Preferred Stock (as corrected). (Incorporated herein by reference to
Exhibit 3.1 of the Company's Current Report on Form 8-K as filed on July
10, 1998.)
3.2 Amendment to Articles of Incorporation Amending the Rights and Preferences
of the Series B Preferred Stock. (Incorporated herein by reference to
Exhibit 3.3 of the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998 as filed on August 14, 1998.)
4.1 Registration Rights Agreement dated as of July 1, 1998, by and among the
Company, Zanett Lombardier, Ltd. ("Lombardier") and The Zanett Securities
Corporation ("Zanett"). (Incorporated herein by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K as filed on July 10, 1998.)
4.2 Form of Stock Purchase Warrant issued to Lombardier and Zanett dated July
1, 1998. (Incorporated herein by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K as filed on July 10, 1998.)
4.3 Securities Purchase Agreement dated as of July 1, 1998, between the
Company and Lombardier. (Incorporated herein by reference to Exhibit 10.1
of the Company's Current Report on Form 8-K as filed on July 10, 1998.)
4.4 Registration Rights Agreement dated as of August 10, 1998, by and among
the Company, Lombardier, Goldman Sachs Performance Partners, L.P.
("Partners") and Goldman Sachs Performance Partners (Offshore), L.P.
("Offshore") and Zanett. (Incorporated herein by reference to Exhibit 4.7
of the Company's Quarterly Report on Form 10-QSB for the period ended June
30, 1998 as filed on August 14, 1998.)
4.5 Form of Stock Purchase Warrant issued to Lombardier, Partners, Offshore
and Zanett dated August 10, 1998. (Incorporated herein by reference to
Exhibit 4.8 of the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998 as filed on August 14, 1998.)
4.6 Securities Purchase Agreement dated as of August 10, 1998, between the
Company, Lombardier, Partners and Offshore. (Incorporated herein by
reference to Exhibit 4.9 of the Company's Quarterly Report on Form 10-QSB
for the period ended June 30, 1998 as filed on August 14, 1998.)
16
<PAGE>
10.1 Facilities and Services Agreement by and between Rehabilicare and the
Company dated August 6, 1998. (Incorporated herein by reference to Exhibit
10.7 of the Company's Quarterly Report on Form 10-QSB for the period ended
June 30, 1998 as filed on August 14, 1998.)
*27.1 Financial Data Schedule for the nine months ended September 30, 1998.
* Filed herewith
(b) REPORTS ON FORM 8-K
During the quarter ended September 30, 1998, the Company filed a Current Report
on Form 8-K in which it reported the issuance of 2,500 units of the Company's
Series B Convertible Preferred Stock on July 13, 1998. In addition, the Company
filed amendments to the Company's current report on Form 8-K dated June 15, 1998
in which it reported the consummation of its acquisition of the Enraf-Nonius
Companies, on August 14 and 19, 1998, including the required financial
information covering the Enraf-Nonius Companies.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this amendment to this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HENLEY HEALTHCARE, INC.
(Registrant)
Date: November 15, 1998 BY: /s/ DAN D. SUDDUTH
Dan D. Sudduth
Executive Vice President,
Chief Financial Officer and Secretary
(on behalf of the Company and as
Chief Accounting Officer)
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
- - -------- --------------------
2.1 Asset Purchase Agreement by and between Rehabilicare Inc. ("Rehabilicare")
and the Company dated August 6, 1998. (Incorporated herein by reference to
Exhibit 2.3 of the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998 as filed on August 14, 1998.)
3.1 Statement of Designation of Rights and Preferences of the Series B
Preferred Stock (as corrected). (Incorporated herein by reference to
Exhibit 3.1 of the Company's Current Report on Form 8-K as filed on July
10, 1998.)
3.2 Amendment to Articles of Incorporation Amending the Rights and Preferences
of the Series B Preferred Stock. (Incorporated herein by reference to
Exhibit 3.3 of the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998 as filed on August 14, 1998.)
4.1 Registration Rights Agreement dated as of July 1, 1998, by and among the
Company, Zanett Lombardier, Ltd. ("Lombardier") and The Zanett Securities
Corporation ("Zanett"). (Incorporated herein by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K as filed on July 10, 1998.)
4.2 Form of Stock Purchase Warrant issued to Lombardier and Zanett dated July
1, 1998. (Incorporated herein by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K as filed on July 10, 1998.)
4.3 Securities Purchase Agreement dated as of July 1, 1998, between the
Company and Lombardier. (Incorporated herein by reference to Exhibit 10.1
of the Company's Current Report on Form 8-K as filed on July 10, 1998.)
4.4 Registration Rights Agreement dated as of August 10, 1998, by and among
the Company, Lombardier, Goldman Sachs Performance Partners, L.P.
("Partners") and Goldman Sachs Performance Partners (Offshore), L.P.
("Offshore") and Zanett. (Incorporated herein by reference to Exhibit 4.7
of the Company's Quarterly Report on Form 10-QSB for the period ended June
30, 1998 as filed on August 14, 1998.)
4.5 Form of Stock Purchase Warrant issued to Lombardier, Partners, Offshore
and Zanett dated August 10, 1998. (Incorporated herein by reference to
Exhibit 4.8 of the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998 as filed on August 14, 1998.)
4.6 Securities Purchase Agreement dated as of August 10, 1998, between the
Company, Lombardier, Partners and Offshore. (Incorporated herein by
reference to Exhibit 4.9 of the Company's Quarterly Report on Form 10-QSB
for the period ended June 30, 1998 as filed on August 14, 1998.)
10.1 Facilities and Services Agreement by and between Rehabilicare and the
Company dated August 6, 1998. (Incorporated herein by reference to Exhibit
10.7 of the Company's Quarterly Report on Form 10-QSB for the period ended
June 30, 1998 as filed on August 14, 1998.)
*27.1 Financial Data Schedule for the nine months ended September 30, 1998.
* Filed herewith
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