UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-QSB/A-1
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 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 August 10, 1998, the issuer had 5,383,205 shares of common stock
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
1
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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) ongoing cost of research and
development activities, (ii) timely approval of the Company's product candidates
by appropriate governmental and regulatory agencies, (iii) effect of any current
or future competitive products, (iv) the Company's ability to manufacture and
market its products commercially, (v) the Company's ability to successfully
integrate acquired operations, (vi) the retention of key personnel and (vii)
capital market conditions. 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 3
Condensed Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-9
2
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HENLEY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1998 December 31,
1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................... $ 1,326,979 $ 123,620
Accounts receivable, net of allowance for
doubtful accounts of $3,117,888 and
$2,165,124, respectively .................. 12,667,940 6,675,800
Inventory .................................... 10,815,826 8,147,357
Prepaid expenses ............................. 671,130 228,165
Other current assets ......................... 140,196 71,960
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TOTAL CURRENT ASSETS ...................... 25,622,071 15,246,902
PROPERTY, PLANT AND EQUIPMENT, net .............. 7,164,606 3,994,231
GOODWILL AND OTHER INTANGIBLES, net ............. 18,367,362 5,670,004
OTHER ASSETS, net ............................... 1,345,109 1,244,580
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TOTAL ASSETS .................................... $ 52,499,148 $ 26,155,717
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit - bank ........................ $ 14,796,882 $ 7,105,868
Current maturities of long-term debt ......... 2,345,214 433,763
Accounts payable ............................. 7,270,275 3,970,270
Accrued expenses and other current liabilities 4,073,124 1,099,572
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ....................... 28,485,495 12,609,473
INTEREST PAYABLE ................................ 295,000 536,667
LONG-TERM DEBT, net of current maturities ....... 15,296,569 9,466,179
- -------------------------------------------------------------------------------
TOTAL LIABILITIES ......................... 44,077,064 22,612,319
STOCKHOLDERS' EQUITY
Preferred stock - $.10 par value; authorized
2,500,000 shares; issued and outstanding
2,500 shares of Series A .................. 2,922,792 --
Common stock - $.01 par value; authorized
20,000,000 shares; issued 5,662,205 and
3,473,897, respectively ................... 56,622 34,738
Additional paid-in-capital ................... 19,613,142 14,117,079
Accumulated deficit .......................... (13,944,293) (10,382,240)
- -------------------------------------------------------------------------------
8,648,263 3,769,577
Treasury stock, at cost, 279,000 common shares (226,179) (226,179)
- -------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY ................ 8,422,084 3,543,398
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...... $ 52,499,148 $ 26,155,717
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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HENLEY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, 1998 1997
- -------------------------------------------------------------------------------
NET SALES ....................................... $ 9,064,935 $ 3,844,525
COST OF SALES ................................... 5,740,745 2,152,982
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GROSS PROFIT .................................... 3,324,190 1,691,543
OPERATING EXPENSES .............................. 4,715,174 1,379,978
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS ................... (1,390,984) 311,565
INTEREST EXPENSE ................................ (432,876) (264,244)
OTHER INCOME (EXPENSE), net ..................... (48,492) 3,711
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS ........ (1,872,352) 51,032
- -------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM OPERATIONS OF HOMECARE
DIVISION..................................... (156,742) 42,666
EXTRAORDINARY ITEM
LOSS ON DISPOSAL OF HOMECARE OPERATIONS...... (952,052) --
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS....... (1,108,794) 42,666
- -------------------------------------------------------------------------------
NET INCOME (LOSS) ............................... $ (2,981,146) $ 93,698
- -------------------------------------------------------------------------------
PREFERRED STOCK DIVIDENDS ....................... $ 621,141 $ --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS .................................... $ (3,602,287) $ 93,698
- -------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE - basic and diluted:
INCOME (LOSS) FROM CONTINUING OPERATIONS
AVAILABLE TO COMMON SHAREHOLDERS................. $ (0.46) $ 0.02
INCOME (LOSS) FROM OPERATIONS OF HOMECARE
DIVISION......................................... $ (0.03) $ 0.01
LOSS FROM DISPOSAL OF HOMECARE DIVISION.......... $ (0.18) $ --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS .................................... $ (0.67) $ 0.03
- -------------------------------------------------------------------------------
SHARES USED IN COMPUTING NET INCOME (LOSS)
PER COMMON SHARE - basic and diluted ........... 5,383,205 2,988,061
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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HENLEY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended June 30, 1998 1997
- -------------------------------------------------------------------------------
NET SALES ....................................... $ 15,488,719 $ 6,979,216
COST OF SALES ................................... 9,488,117 3,793,881
- -------------------------------------------------------------------------------
GROSS PROFIT .................................... 6,000,602 3,185,335
OPERATING EXPENSES .............................. 6,889,909 2,493,784
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS ................... (889,307) 691,551
INTEREST EXPENSE ................................ (765,771) (507,012)
OTHER INCOME (EXPENSE), net ..................... 19,972 8,856
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS ........ (1,635,106) 193,395
- -------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM OPERATIONS OF HOMECARE
DIVISION......................................... (301,978) 53,482
EXTRAORDINARY ITEM
LOSS ON DISPOSAL OF HOMECARE OPERATIONS...... (952,052) --
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS....... (1,254,030) 53,482
- -------------------------------------------------------------------------------
NET INCOME (LOSS) ............................... $ (2,889,136) $ 246,877
- -------------------------------------------------------------------------------
PREFERRED STOCK DIVIDENDS ....................... $ 672,917 $ --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS .................................... $ (3,562,053) $ 246,877
- -------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE - basic and diluted:
INCOME (LOSS) FROM CONTINUING OPERATIONS
AVAILABLE TO COMMON SHAREHOLDERS................. $ (0.50) $ 0.07
INCOME (LOSS) FROM OPERATIONS OF HOMECARE
DIVISION......................................... $ (0.06) $ 0.02
LOSS FROM DISPOSAL OF HOMECARE DIVISION.......... $ (0.21) $ --
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS..................................... $ (0.77) $ 0.09
- -------------------------------------------------------------------------------
SHARES USED IN COMPUTING NET INCOME (LOSS) PER
COMMON SHARE - basic and diluted ............ 4,652,609 2,884,851
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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<TABLE>
<CAPTION>
HENLEY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30, 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss).................................... $(2,889,136) $ 246,877
- ----------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization expense.......... 867,655 273,119
Interest expense imputed on notes payable ..... 79,332 165,667
Bad debt expense .............................. 590,846 690,441
Loss on discountinued operations .............. 952,052 --
Changes in operating assets and
liabilities:
Increase in accounts receivable ........... (1,940,059) (1,270,555)
Decrease (increase) in inventory .......... 760,142 (360,923)
Decrease in prepaid expenses and other
current assets ........................ 155,956 80
Decrease (increase) in other assets ....... 7,842 (97,084)
Decrease in accounts payable, accrued
expenses and other current liabilities . (219,649) (107,449)
- ----------------------------------------------------------------------------------
Total adjustments ................... 1,254,117 (706,704)
- ----------------------------------------------------------------------------------
Net cash used in
operating activities ............. (1,635,019) (459,827)
- ----------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired of $1,118,524.. 548,524 (439,641)
Capital expenditures ............................. (1,682,102) (61,367)
- ----------------------------------------------------------------------------------
Net cash used in investing activities (1,133,578) (501,008)
- ----------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock .... 2,249,875 --
Proceeds from line of credit ..................... 698,955 1,519,462
Proceeds from long-term debt ..................... 1,260,000 --
Principal payments of long-term debt ............. (236,874) (596,392)
- ----------------------------------------------------------------------------------
Net cash provided by financing
activities ........................ 3,971,956 923,070
- ----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,203,359 (37,765)
Cash and cash equivalents at beginning of period .... 123,620 507,892
- ----------------------------------------------------------------------------------
Cash and cash equivalents at end of period .......... $ 1,326,979 $ 470,127
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ...................................... $ 701,000 $ 325,335
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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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. 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
$600,000. 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
Offering that were funded in July and August 1998. The acquisition was
accounted for as a purchase.
The following summarized pro forma (unaudited) information assumes the
acquisition of Enraf had occurred on January 1, 1998
For 6 months ended June 30, 1998
Net Sales ...................... $ 29,767,641
Net Loss ...................... $ (6,481,219)
Net loss per common share ...... $ (1.39)
The above amounts reflect adjustments for interest related to financing
the Enraf-Nonius acquisition, amortization of goodwill, and royalty
expense.
3. 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.
7
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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 1,825 shares
and $6.375 for 675 shares. 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 management estimated their value to be immaterial due to the
exercise prices primarily being in excess of the current fair value of the
Company's common stock.
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 will be treated as a dividend to the
holders of the Series A Preferred Stock and will be recorded ratably over
120 days, the earliest conversion date of the Series A Preferred Stock.
For the six months ended June 30, 1998, the deemed dividend amounted to
approximately $673,000. 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.
4. 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 June 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 for up to $2 million dollars of
reorganization costs at such facilities.
5. 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 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.
8
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6. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board adopted SFAS No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting comprehensive income and its components. The Company is adopting
this statement in the current fiscal year. There is no difference in the
reported amounts of net income and comprehensive income for the three and
six months ended June 30, 1998.
7. SUBSEQUENT EVENTS:
FINANCINGS - 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 and issued an aggregate of
235,000 warrants to purchase common stock at exercise prices ranging from
$5.87 to $6.00. Process 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 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 Company
intends to file 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.
Pursuant to the terms of the Statement of Designation of Rights and
Preferences of the Series B Preferred Stock, the Company is not required
to issue shares of its Common Stock on conversion of the Preferred Stock
unless such shares have been approved for listing on the exchange or
market on which the Common Stock is trading. In such an event, until the
Company obtains the requisite shareholder approval, the Company is not
obligated to issue shares in excess of the amount of shares which does not
require shareholder approval, which under the Nasdaq SmallCap Rules is 20%
of the Company's outstanding Common Stock. Therefore, until the Company
receives shareholder approval, the Preferred Stock will not be convertible
into more than the number of shares of Common Stock which may be listed
under the Nasdaq SmallCap Rules without obtaining shareholder approval.
The Company has agreed to obtain shareholder approval for the issuance of
the Preferred Stock subsequent to the closing in order to eliminate this
limit on the shares issuable on conversion of the Preferred Stock.
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. Based on the sales price of the
assets, the Company has written down certain assets, including related
goodwill, to their net realizable value at June 30, 1998 by approximately
$952,000. Proceeds from the sale were used to pay down on existing bank
debt with Comerica Bank. The results of the Homecare division have been
reported separately as discontinued operations. Prior year consolidated
financial statements have been restated to present the Homecare business
as discontinued. Revenues for the Homecare division were $3,014,447 and
$3,432,441 for the six months ended June 30, 1998 and 1997, respectively,
and $ 1,454,030 and $1,700,506 for the three months ended June 30, 1998
and 1997, respectively.
The components of the assets of discontinued operations included in
the consolidated balance sheets are as follows:
June 30, 1998 1997
-------- ---- ----
Current Assets
Accounts receivable, net $1,939,321 $3,983,786
Inventories 1,625,961 2,280,198
---------- ----------
Total current assets 3,565,282 6,263,984
Other assets, net 84,359 375,597
---------- ----------
Total Assets $3,649,641 $6,639,580
========== ==========
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 its 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.
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
Sales revenues increased $5.2 million, or 135%, from $3.8 million for the
three months ended June 30, 1997 to $9.0 million for the three months ended June
30, 1998. Revenues increased $8.5 million, or 121%, from $6.9 million for the
six months ended June 30, 1997 to $15.4 million for the six months ended June
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 $1.6 million, or 96.5%, from $1.7 million for the
three months ended June 30, 1997 to $3.3 million for the three months ended June
30, 1998. Gross profit increased $2.8 million, or 88%, from $3.2 million for the
six months ended June 30, 1997 to $6.0 million for the six months ended June 30,
1998. These increases are principally due to the increases in revenues described
above. As a percentage of revenue, gross profit decreased from 44% for the three
months ended June 30, 1997 to 37% for the three months ended June 30, 1998; and
decreased from 46% for the six months ended June 30, 1997 to 39% for the six
months ended June 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 51% for the six
month period ended June 30, 1998, an increase of 5% 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.
Operating expenses increased $3.3 million, or 241%, from $1.4 million for
the three months ended June 30, 1997 to $4.7 million for the three months ended
June 30, 1998. Operating expenses increased $4.3 million, or 176%, from $2.5
million for the six months ended June 30, 1997 to $6.8 million for the six
months ended June 30, 1998. As a percentage of sales, operating expenses
increased from 36% for the three months ended June 30, 1997 to 52% for the three
months ended June 30, 1998; and these expenses also increased from 36% for the
six months ended June 30, 1997 to 44% for the six months ended June 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.
Interest charges increased $168,000, or 64%, from $264,000 for the three
months ended June 30, 1997 to $432,000 for the three months ended June 30, 1998;
and interest charges increased $258,000, or 51%, from $507,000 for the six
months ended June 30, 1997 to $765,000 for the six months ended June 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
since the end of the quarter, the Company has 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 has used the
proceeds from the sale of its Homecare assets to reduce the outstanding balance
of the Company's Line of Credit.
In the second quarter of 1998, the Company recognized a write down of its
Homecare division's assets to their net realizable value, as a result of the
sale of the division in August 1998. The write-down was approximately $0.95
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 $3.0 million for the quarter ended June 30, 1998 and $2.9 million
for the six months ended June 30, 1998 compared to net income of
approximately $0.2 million and $0.1 million for the same periods in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, the Company had cash and cash equivalents in the amount of
$1.3 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 June 30, 1998, the Company
had a working capital deficit of approximately $2.8 million and its current
ratio was .90 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 June 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 1,825 shares and $6.375 for 675 shares. 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. 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 Deflt in connection with the Enraf-Nonius
Acquisition.
The Company intends to file a registration statement covering the shares
to be issued upon conversion of the Series B Preferred Stock and the associated
warrants.
The Company is currently assessing the potential impact of the present
computer technology issue generally referred to as the "Year 2000 Problem." The
Year 2000 Problem, which is common to most corporations, relates to the
inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information related to the year
2000 and beyond. Based on the Company's evaluation of its positive compliance
with the Year 2000 Problem, the Company expects that the remaining costs will
not have a material adverse effect on the Company's results of operations or
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 June 30, 1998, the
Company had no availability for borrowing under a Line of Credit with Comerica.
However, proceeds from the sale of the Homecare division were used to reduce the
outstanding balance under the Line of Credit. Accordingly, there was $2.4
million in availability under the Line of Credit as of August 14, 1998.
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.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of unregistered securities occurred during the quarter
ended June 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:
During April 1998, the Company issued to certain accredited investors 675
shares of Series A Preferred Stock and 5-year warrants to purchase an aggregate
of 54,000 shares of common stock. (See Footnotes to Consolidated Financial
Statements).
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
ITEM 5. OTHER INFORMATION
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 $4.3 million in cash proceeds and issued an
aggregate of 235,000 warrants to purchase common stock at exercise prices
ranging from $5.87 to $6.00 (See footnotes to Consolidated Financial
Statements).
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
liabliities (See footnotes to Consolidated Financial Statements).
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 Agreement for the Sale and Purchase of the Enraf-Nonius Companies, dated
March 6, 1998, by and between the Company on behalf of Henley Healthcare
B.V. and Delft Instruments Nederland B.V., Delft Instruments
II-1
<PAGE>
International B.V., Beheermaatschappij Elektroptik B.V., Delft
Instruments France S.A., B.V. Industriele Houdstermaatschappij Odelca,
Enraf-Nonius Technology B.V., Beheermaatschappij Oldelca B.V., Dimeq
Medizinelektronik GMBH Berlin and N.V. Verenigde Instrumentenfabrieken
Enraf-Nonius. (Incorporated herein by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
2.2 Amendment to the Agreement Regarding the Sale and Purchase of the
Enraf-Nonius Companies, dated May 29, 1998, by and between Henley
Healthcare B.V. and Delft Instruments Nederland B.V., Delft Instruments
International B.V., Beheermaatschappij Elektroptik B.V., Delft
Instruments France S.A., B.V. Industriele Houdstermaatschappij Odelca,
Enraf-Nonius Technology B.V., Beheermaatschappij Oldelca B.V., Dimeq
Medizinelektronik GMBH Berlin and N.V. Verenigde Instrumentenfabrieken
Enraf-Nonius. (Incorporated herein by reference to Exhibit 2.2 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
**2.3 Asset Purchase Agreement by and between Rehabilicare Inc.
("Rehabilicare") and the Company dated August 6, 1998.
3.1 Statement of Designation of Rights and Preferences of the Series A
Preferred Stock (as corrected). (Incorporated herein by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1998 as filed on May 15, 1998.)
3.2 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.)
**3.3 Amendment to Articles of Incorporation Amending the Rights and
Preferences of the Series B Preferred Stock.
4.1 Form of Subscription Agreement between the Company and the Series A
Preferred Stock Investors. (Incorporated herein by reference to Exhibit
4.1 of the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998 as filed on May 15, 1998.)
4.2 Form of Stock Purchase Warrant issued to Series A Preferred Stock
Investors. (Incorporated herein by reference to Exhibit 4.2 of the
Company's Quarterly Report on Form 10-QSB for the period ended March 31,
1998 as filed on May 15, 1998.)
4.3 Form of Registration Rights Agreement between the Company and the Series
A Preferred Stock Investors. (Incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998 as filed on May 15, 1998.)
4.4 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.)
4.5 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.)
4.6 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.)
**4.7 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.
**4.8 Form of Stock Purchase Warrant issued to Lombardier, Partners, Offshore
and Zanett dated August 10, 1998.
**4.9 Securities Purchase Agreement dated as of August 10, 1998, between the
Company, Lombardier, Partners and Offshore.
II-2
<PAGE>
10.1 Subordinated Loan Agreement dated as of May 29, 1998, by and between
Delft Instruments Nederland B.V., Henley Healthcare B.V., and the
Company. (Incorporated herein by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.2 Fourth Amendment to Amended and Restated Loan Agreement, dated effective
May 29, 1998, by and between the Company and Comerica Bank-Texas.
(Incorporated herein by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K/A as filed on August 14, 1998.)
10.3 Amendment to Subordination Agreement dated as of May 29, 1998 by and
between Maxxim Medical, Inc. ("Maxxim"), the Company and Comerica
Bank-Texas. (Incorporated herein by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.4 Joinder Agreement dated effective as of May 29, 1998, executed by Henley
Healthcare, B.V. (Incorporated herein by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.5 Second Modification to Convertible Subordinated Promissory Note, dated as
of June 5, 1998, between the Company and Maxxim. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Current Report on Form 8-K/A
as filed on August 14, 1998.)
10.6 Revolving Loan Agreement by and between the Company and the Bank of
Artesia. (Incorporated herein by reference to Exhibit 10.6 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
**10.7 Facilities and Services Agreement by and between Rehabilicare and the
Company dated August 6, 1998.
*27.1 Financial Data Schedule for the six months ended June 30, 1998.
- ------------------
* Filed herewith
** Included with the Company's initial Form 10Q-SB as filed on August 14,
1998.
(b) REPORTS ON FORM 8-K
During the quarter ended June 30, 1998, the Company filed a Current Report
on Form 8-K dated June 15, 1998 in which it reported the consummation of its
acquisition of the Enraf-Nonius Companies. In addition, the Company filed a
Current Report on Form 8-K in which it reported the issuance of $2.2 million of
the Company's convertible Series B Preferred Stock on July 13, 1998.
II-3
<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: August 19, 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)
II-4
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
- -------- -----------
2.1 Agreement for the Sale and Purchase of the Enraf-Nonius Companies, dated
March 6, 1998, by and between the Company on behalf of Henley Healthcare
B.V. and Delft Instruments Nederland B.V., Delft Instruments
International B.V., Beheermaatschappij Elektroptik B.V., Delft
Instruments France S.A., B.V. Industriele Houdstermaatschappij Odelca,
Enraf-Nonius Technology B.V., Beheermaatschappij Oldelca B.V., Dimeq
Medizinelektronik GMBH Berlin and N.V. Verenigde Instrumentenfabrieken
Enraf-Nonius. (Incorporated herein by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
2.2 Amendment to the Agreement Regarding the Sale and Purchase of the
Enraf-Nonius Companies, dated May 29, 1998, by and between Henley
Healthcare B.V. and Delft Instruments Nederland B.V., Delft Instruments
International B.V., Beheermaatschappij Elektroptik B.V., Delft
Instruments France S.A., B.V. Industriele Houdstermaatschappij Odelca,
Enraf-Nonius Technology B.V., Beheermaatschappij Oldelca B.V., Dimeq
Medizinelektronik GMBH Berlin and N.V. Verenigde Instrumentenfabrieken
Enraf-Nonius. (Incorporated herein by reference to Exhibit 2.2 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
**2.3 Asset Purchase Agreement by and between Rehabilicare Inc.
("Rehabilicare") and the Company dated August 6, 1998.
3.1 Statement of Designation of Rights and Preferences of the Series A
Preferred Stock (as corrected). (Incorporated herein by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-QSB for the
period ended March 31, 1998 as filed on May 15, 1998.)
3.2 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.)
**3.3 Amendment to Articles of Incorporation Amending the Rights and
Preferences of the Series B Preferred Stock.
4.1 Form of Subscription Agreement between the Company and the Series A
Preferred Stock Investors. (Incorporated herein by reference to Exhibit
4.1 of the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998 as filed on May 15, 1998.)
4.2 Form of Stock Purchase Warrant issued to Series A Preferred Stock
Investors. (Incorporated herein by reference to Exhibit 4.2 of the
Company's Quarterly Report on Form 10-QSB for the period ended March 31,
1998 as filed on May 15, 1998.)
4.3 Form of Registration Rights Agreement between the Company and the Series
A Preferred Stock Investors. (Incorporated herein by reference to Exhibit
4.3 of the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998 as filed on May 15, 1998.)
4.4 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.)
4.5 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.)
4.6 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.)
**4.7 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.
II-5
<PAGE>
**4.8 Form of Stock Purchase Warrant issued to Lombardier, Partners, Offshore
and Zanett dated August 10, 1998.
**4.9 Securities Purchase Agreement dated as of August 10, 1998, between the
Company, Lombardier, Partners and Offshore.
10.1 Subordinated Loan Agreement dated as of May 29, 1998, by and between
Delft Instruments Nederland B.V., Henley Healthcare B.V., and the
Company. (Incorporated herein by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.2 Fourth Amendment to Amended and Restated Loan Agreement, dated effective
May 29, 1998, by and between the Company and Comerica Bank-Texas.
(Incorporated herein by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K/A as filed on August 14, 1998.)
10.3 Amendment to Subordination Agreement dated as of May 29, 1998 by and
between Maxxim Medical, Inc. ("Maxxim"), the Company and Comerica
Bank-Texas. (Incorporated herein by reference to Exhibit 10.3 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.4 Joinder Agreement dated effective as of May 29, 1998, executed by Henley
Healthcare, B.V. (Incorporated herein by reference to Exhibit 10.4 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
10.5 Second Modification to Convertible Subordinated Promissory Note, dated as
of June 5, 1998, between the Company and Maxxim. (Incorporated herein by
reference to Exhibit 10.5 of the Company's Current Report on Form 8-K/A
as filed on August 14, 1998.)
10.6 Revolving Loan Agreement by and between the Company and the Bank of
Artesia. (Incorporated herein by reference to Exhibit 10.6 of the
Company's Current Report on Form 8-K/A as filed on August 14, 1998.)
**10.7 Facilities and Services Agreement by and between Rehabilicare and the
Company dated August 6, 1998.
*27.1 Financial Data Schedule for the six months ended June 30, 1998.
- ------------------
* Filed herewith
** Included with the Company's initial Form 10Q-SB as filed on August 14,
1998.
II-6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BALANCE SHEET, STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,326,979
<SECURITIES> 0
<RECEIVABLES> 15,785,828
<ALLOWANCES> (3,117,880)
<INVENTORY> 10,815,826
<CURRENT-ASSETS> 25,622,071
<PP&E> 7,164,606
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,499,148
<CURRENT-LIABILITIES> 28,485,495
<BONDS> 0
0
2,922,792
<COMMON> 56,622
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 52,499,148
<SALES> 15,488,719
<TOTAL-REVENUES> 0
<CGS> 9,488,117
<TOTAL-COSTS> 16,378,026
<OTHER-EXPENSES> (19,972)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 765,771
<INCOME-PRETAX> (1,635,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,635,106)
<DISCONTINUED> (301,973)
<EXTRAORDINARY> (952,052)
<CHANGES> 0
<NET-INCOME> (2,889,136)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)
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