SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 18, 1998 (May 29, 1998)
Henley Healthcare, Inc.
(Exact name of registrant as specified in its charter)
Texas
(State or other jurisdiction of incorporation)
0-21054 76-0511324
(Commission File Numb (IRS Employer Identification No.)
120 Industrial Boulevard, Sugar Land, Texas 77478
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 276-7000
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired.
See the Financial Statements included herein on page F-1.
(b) Pro Forma Financial Information.
Henley Healthcare
Proforma Profit & Loss Statement
Six months ended June 30, 1998
<TABLE>
<CAPTION>
PROFORMA
PROFORMA CONSOLIDATED
HENLEY ENRAF-NONIUS COMBINED ADJUSTMENT PROFIT(LOSS)
------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net Sales ............................... $ 15,488,719 $ 14,278,922 $ 29,767,541 $ 29,767,641
Cost of Sales ........................... 9,488,117 7,781,373 17,269,490 17,269,490
------------ ------------ ------------ ------------ ------------
Gross Profit ............................ 6,000,802 6,497,549 12,498,151 12,498,151
Operating Expenses ...................... 6,889,909 8,271,569 15,161,478(A) 704,379 15,865,857
------------ ------------ ------------ ------------ ------------
Loss From Operations .................... (869,307) (1,774,020) (2,663,327) (704,379) (3,367,706)
Interest Expense ........................ (766,771) (436,215) (1,202,046)(B) 28,275 (1,173,771)
Other Income (Expense) net .............. 19,972 19,912 19,972
------------ ------------ ------------ ------------ ------------
Net Loss From Continuing Operations ..... (1,635,106) (2,210,295) (3,645,401) (676,104) (4,521,505)
Discontinued Operations:
Loss from Operations of Homecare
Division ............................ (301,978) (301,978) (301,978)
Loss on Disposal of Homecare
Division ............................ (952,052) (952,052) (952,052)
------------ ------------ ------------ ------------ ------------
Net Loss ................................ ($ 2,889,136) ($ 2,210,295) ($ 5,099,431) ($ 676,104) ($ 5,775,535)
Foreign Currency Translation ............ (4,902) (4,902) (4,902)
Preferred Stock Dividends ............... 672,917 672,917 672,917
------------ ------------ ------------ ------------ ------------
Net Loss Avaliable to Common Shareholders ($ 3,562,053) ($ 2,215,197) ($ 5,777,260) ($ 676,104) ($ 6,453,354)
============ ============ ============ ============ ============
</TABLE>
The following notes identify the pro forma adjustments made to the historical
amounts in the pro forma unaudited financial statements.
A) Represents the increase related to the amortization of goodwill, and
royalty at 1 1/2%.
B) Represents the reduction of interest expense related to Enraf-Nonius'
portion of Delft Instruments, BV intercompany debt.
<PAGE>
(c) 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 report on Form 8-K.
*2.1 Agreement for the Sale and Purchase of the Enraf-Nonius Companies,
dated March 6, 1998, by and between Henley Healthcare, Inc. 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 Oldelft
B.V., Dimeq Verwaltungs GMBH Berlin and N.V. Verenigde
InstrumentenfabriekenEnraf-Nonius.
*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
Odelft, Enraf-Nonius Technology B.V., Beheermaatschappij Oldelca
B.V., Dimeq Verwaltungs GMBH Berlin and N.V. Verenigde
Instrumentenfabrieken Enraf-Nonius.
*10.1 Subordinated Loan Agreement dated as of May 29, 1998, by and between
Delft Instruments Nederland B.V., Henley Healthcare B.V., and Henley
Healthcare Inc.
*10.2 Fourth Amendment to Amended and Restated Loan Agreement, dated
effective May 29, 1998, by and between Henley Healthcare, Inc. and
Comerica Bank-Texas.
*10.3 Amendment to Subordination Agreement dated as of May 29, 1998 by and
between Maxxim Medical, Inc., Henley Healthcare, Inc. and Comerica
Bank-Texas.
*10.4 Joinder Agreement dated effective as of May 29, 1998, executed by
Henley Healthcare, B.V.
*10.5 Second Modification to Convertible Subordinated Promissory Note,
dated as of June5, 1998, between Henley Healthcare, Inc. and Maxxim
Medical, Inc.
*10.6 Revolving Loan Agreement with Bank of Artesia.
- ----------------
* Previously included with Form 8-K/A filed on August 14, 1998.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned hereunto duly authorized.
HENLEY HEALTHCARE, INC.
Date: August 18, 1998 By: /s/ MICHAEL M. BARBOUR
Michael M. Barbour,
President and Chief Executive Officer
4
<PAGE>
1997 COMBINED FINANCIAL STATEMENTS
OF
THE ENRAF-NONIUS COMPANIES
<PAGE>
The Board of Directors
The Enraf-Nonius Companies
REPORT OF THE INDEPENDENT AUDITORS
We have audited the accompanying combined balance sheet of the Enraf-Nonius
Companies (comprised of Enraf-Nonius B.V, Enraf-Nonius N.V, Enraf-Nonius S.A.,
and Enraf-Nonius Medizintechnik GmbH, (collectively the Group) as of December
31, 1997 and the accompanying combined statements of operations and
comprehensive loss, stockholder's equity/(deficiency) and cash flows for the two
years ended December 31, 1997 and 1996.
These financial statements are the responsibility of the Group's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
at December 31, 1997 and the combined results of their operations and their cash
flows for the two years ended December 31, 1997 and 1996, in conformity with
United States generally accepted accounting principles.
The interim financial statements at June 30, 1998 and 1997 have not been
audited by us. Consequently, we do not express an opinion thereon.
The Hague, July 31, 1998
MORET ERNST & YOUNG ACCOUNTANTS
F-1
<PAGE>
COMBINED BALANCE SHEETS
ASSETS
UNAUDITED
(NLG 000'S) DECEMBER 31, 1997 JUNE 30, 1998
------------------ --------------
CURRENT ASSETS
Cash and cash equivalents............ 6,369 1,894
Receivables..........................
Trade, less allowance for doubtful accounts as of December 31, 1997 and June
30, 1998 of 3,185 and
3,375, respectively............. 10,581 10,942
Other.............................. 744 634
Inventories.......................... 10,411 6,461
Due from related companies........... 4,266 1,469
Prepaid expenses................... 887 1,054
-------- --------------
Total current assets....... 33,258 22,454
PROPERTY, PLANT AND EQUIPMENT AT
COST, LESS ACCUMULATED
DEPRECIATION....................... 8,547 3,692
INTANGIBLE ASSETS, LESS ACCUMULATED
AMORTIZATION AS OF DECEMBER 31,
1997 AND JUNE 30, 1998 OF 213 AND
320, RESPECTIVELY.................. 427 320
INVESTMENTS IN AFFILIATES............ 186 186
-------- --------------
TOTAL ASSETS............... 42,418 26,652
======== ==============
F-2
<PAGE>
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
UNAUDITED
DECEMBER 31, 1997 JUNE 30, 1998
-------------------- --------------------
(NLG 000'S)
CURRENT LIABILITIES
Bank overdraft....................... 1,129 13,928
Accounts payable..................... 8,831 6,595
Accrued expenses and other
payables........................... 4,150 5,370
Due to related companies............. 32,010 --
--------- ---------
Total current liabilities............ 46,120 25,893
LONG-TERM DEBTS...................... -- 7,320
PENSION OBLIGATIONS.................. 1,824 1,824
OTHER PROVISIONS..................... 145 145
OBLIGATIONS UNDER CAPITAL LEASES
Non-current portion................ 1,939 1,874
STOCKHOLDER'S DEFICIENCY
Enraf-Nonius B.V.: Common stock:
NLG 1,000 par value; authorized
20,000 shares; issued and
outstanding 19,183 shares....... 19,183 19,183
Additional paid-in capital......... 1,000 1,000
Enraf-Nonius S.A.: Common Stock:
FF 100 par value; authorized 30,500
shares; issued and outstanding
30,500 shares................... 999 999
Additional paid-in capital......... 8,188 8,188
Enraf-Nonius Medizintechnik GmbH:
Common stock: DEM 1,000 par value,
authorized 750 shares; issued
and outstanding 750 shares......... 842 842
Additional paid-in capital........... -- 90
Enraf-Nonius N.V.: Common Stock:
BEF 0 par value; authorized 2,500
shares; issued and outstanding
2,500 shares.................... 2,861 2,861
Additional paid-in capital........... -- 1,635
Translation adjustment............... 22 12
Accumulated deficit.................. (40,705) (45,214)
--------- ---------
Total stockholder's deficiency....... (7,610) (10,404)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S
DEFICIENCY........................... 42,418 26,652
========= =========
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- --------------------
(NLG 000'S) 1997 1996 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales............................... 64,159 66,286 29,129 31,739
Cost of sales........................... 33,917 39,617 15,874 16,951
---------- ---------- --------- ---------
Gross profit............................ 30,242 26,669 13,255 14,788
Selling, general, and administrative
expenses.............................. (36,849) (36,915) 16,874 18,078
---------- ---------- --------- ---------
LOSS FROM OPERATIONS.................... (6,607) (10,246) (3,619) 3,290
Other income (expense):
o Interest expense, net............. (448) (639) (890) (66)
o Other financial
income/(expense)...................... (78) 27 -- 78
---------- ---------- --------- ---------
Other income (expense), net............. (526) (612) (890) 12
---------- ---------- --------- ---------
LOSS BEFORE INCOME TAXES................ (7,133) (10,858) (4,509) (3,278)
Income tax benefits..................... 1,244 3,085 -- 428
---------- ---------- --------- ---------
NET LOSS................................ (5,889) (7,773) (4,509) (2,850)
OTHER COMPREHENSIVE INCOME, NET OF
TAX...................................
Foreign Currency translation
adjustment............................ 8 12 (10) 1
---------- ---------- --------- ---------
COMPREHENSIVE INCOME.................... (5,881) (7,761) (4,519) (2,849)
========== ========== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY/(DEFICIENCY)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
ADDITIONAL OTHER STOCKHOLDER'S
COMMON PAID-IN COMPREHENSIVE ACCUMULATED EQUITY/
NNLG 000'S) STOCK CAPITAL INCOME DEFICIT (DEFICIENCY)
------- ----------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... 20,250 9,188 2 (27,043) 2,397
Capital contributed upon
incorporation (Germany)............ 842 842
Capital increase (Belgium)........... 2,793 2,793
Other comprehensive income........... 12 12
Net loss............................. (7,773) (7,773)
------- ----------- --- ------------ ---------------
Balance at December 31, 1996......... 23,885 9,188 14 (34,816) (1,729)
Other comprehensive income........... 8 8
Net loss............................. (5,889) (5,889)
------- ----------- --- ------------ ---------------
Balance at December, 1997............ 23,885 9,188 22 (40,705) 7,610)
Additional paid-in capital........... 1,725 1,725
Net loss (unaudited) 1998............ (4,509) (4,509)
Other comprehensive income
(unaudited)........................ (10) (10
------- ----------- --- ------------ ---------------
Balance at June 30, 1998
(unaudited)........................ 23,885 10,913 12 (45,214) (10,404)
======= =========== === ============ ===============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
(NLG 000'S) 1997 1996 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................ (5,889) (7,773) (4,509) (2,850)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
o Depreciation...................... 2,044 1,944 437 1,062
o Amortization...................... 213 -- 107 107
o Equity in earnings non-combined
companies............................. (36) (19) -- --
o Net changes in operating assets
and liabilities:
-- Receivables...................... 6,666 (3,003) (251) 2,544
-- Inventories...................... 4,745 2,391 3,950 (237)
-- Due from related companies....... (1,804) 1,947 2,797 117
-- Prepaid expenses................. 93 230 (167) (382)
-- Bank overdraft................... (9,217) (2,292) 12,799 (9,153)
-- Accounts payable................. (419) 1,375 (2,236) 800
-- Accrued expenses and other
payables.......................... 1,097 (254) 1,220 (71)
-- Due to related companies......... 5,739 (1,567) (2,910) 320
-- Increase in other obligations.... 334 701 -- 2,555
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................ 3,566 (6,320) 11,237 (5,188)
INVESTING ACTIVITIES.................... 1,282 (2,285) 4,418 1,793
Decrease in capital leases (incl.
current portion)...................... (125) (110) (65) (60)
--------- --------- --------- ---------
NET CASH FROM (USED IN) INVESTING
ACTIVITIES............................ 1,157 (2,395) 4,353 1,733
FINANCING ACTIVITIES....................
Increase in share capital............... -- 3,635 -- --
Increase in paid-in capital............. -- -- 1,725 --
Increase related companies (internal
bank)................................. 240 4,498 (29,100) 7,091
Proceeds from long term debts........... -- -- 7,320 --
Translation of foreign currencies....... 8 12 (10) 1
--------- --------- --------- ---------
NET CASH FROM FINANCING ACTIVITIES...... 248 8,145 (20,065) 7,092
Net increase (decrease) in cash and cash
equivalents........................... 4,971 (570) (4,475) 3,637
Cash and cash equivalents at beginning
of period............................. 1,398 1,968 6,369 1,398
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ 6,369 1,398 1,894 5,035
========= ========= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CERTAIN CASH FLOW INFORMATION
Interest and corporate taxes are settled between group entities and the
parent without the exchange of cash (December 31, 1997 and 1996 and June 30,
1997).
Cash paid for interest during the six months ended June 30, 1998 amounted
to 791 (unaudited).
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS
The combined balance sheet as of December 31, 1997 and the accompanying
combined statements of operations and comprehensive loss, stockholder's
equity/(deficiency) and cash flows for the two years ended December 31, 1997 and
1996 have been audited by Moret Ernst & Young Accountants, The Hague, The
Netherlands.
The interim financial statements at June 30, 1998 and 1997 have not been
audited.
1. ORGANIZATION
The Enraf-Nonius Companies (the Group) are comprised of Enraf-Nonius B.V.
(the Company), Enraf-Nonius N.V., Enraf-Nonius S.A. and Enraf-Nonius
Medizintechnik GmbH. They are engaged in the development, manufacture and
marketing of medical products, including ultrasound and electronic stimulation
used in pain management, physical therapy and rehabilitation.
As more fully described in Note 16 -- Subsequent Event, the Enraf-Nonius
Companies were sold as a group subsequent to December 31, 1997 by their common
ultimate parent, Delft Instruments NV.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES BASIS AND COMBINATION
The accompanying combined financial statements have been prepared on the
basis of generally accepted accounting principles as promulgated in the United
States of America. They present the financial position, results of operations,
cash flows and changes in stockholder's deficiency of the Enraf-Nonius Companies
as though they comprised one, consolidated entry. The combined financial
statements include the financial information of the following entities:
<TABLE>
<CAPTION>
ISSUED AND OUTSTANDING
NAME LEGAL SEAT COMMON STOCK
- ------------------------------------- ------------------------------ ---------------------------
<S> <C>
Enraf-Nonius B.V..................... Delft, The Netherlands NLG 19,183,000
Enraf-Nonius N.V..................... Oudenaarde, Belgium BEF 52,500,000
Enraf-Nonius S.A..................... Sevran, France FF 3,050,000
Enraf-Nonius Medizintechnik GmbH..... Solingen, Germany DEM 750,000
</TABLE>
Investments are accounted for using the equity method.
The principal currency of operations and that of the Group's common parent
is Dutch guilders. Accordingly, Dutch guilders have been used as the reporting
currency for this presentation. The functional currency of each of the Group's
entities is its respective local currency. Consequently, all differences arising
from the translation of Group entity financial statements have been included in
"Accumulated Other Comprehensive Income' in the Statements of Changes in
Stockholder's Equity/(Deficiency).
All significant intercompany balances and transactions have been eliminated
in the combinations.
REVENUE RECOGNITION
Revenue is recognized upon shipment of products to customers, at which time
the ownership of the products transfers to the buyer.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist principally of demand deposits with
financial institutions having maturities of less than three months from the
balance sheet date.
INVENTORIES
Inventories are stated at the lower of cost determined by the first-in,
first-out (FIFO) method or market. Market is based on net realizable value. Cost
includes the acquisition of materials and components, direct labor and overhead.
F-7
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS
The Group's financial instruments consist of cash equivalents, accounts
receivable, notes receivable, investments and accounts payable. The fair values
of these instruments approximate their carrying values.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over their estimated useful lives (ranging from 3 to 33
years). Maintenance and expenses are charged to expense as incurred. Major
renewals and improvements are capitalized.
INTANGIBLES
The excess of cost over the fair value of net assets acquired is amortized
on a straight-line basis over period of 3 years. This is based upon the
estimated future demand for particular physio-therapy equipment and activities,
the production and marketing rights of which were acquired from third parties.
The carrying value of intangible assets is periodically reviewed by
management. Based upon analyses, management believes that no material impairment
of intangible assets exists as of December 31, 1997 and the estimated useful
life continues to approximate its useful life.
INVESTMENT IN AFFILIATES
Investments in affiliates are valued at their respective net asset values.
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to approximately
NLG 2.6 million and NLG 2.7 million for the years ended December 31, 1997 and
1996, respectively. These expenses were NLG 0.7 million and NLG 1.2 million for
the six months periods ended June 30, 1998 and 1997, respectively (unaudited).
INCOME TAXES
The Group records income taxes using the asset and liability method.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities are measured using
the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred and amounted to
approximately NLG 5.2 million and NLG 6.4 million for the years ended December
31, 1997 and December 31, 1996, respectively. Such expense was NLG 2.4 million
and NLG 2.6 million for the six months periods ended June 30, 1998 and 1997,
respectively (unaudited).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions such as allowances for doubtful accounts and depreciation and
amortization rates that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
PENSIONS
In addition to State Pension Plans in the Group's respective countries, all
of the Dutch company's employees of 25 years and older are insured under the
industrial pension fund for the Metal Industry, which is a multi-employer plan.
The plan is funded by way of an annual average premium contribution. Pension
F-8
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
expense represents amounts assessed by the plan. Certain personnel of the Dutch
Company and of the German Company are covered under defined benefit plans, the
obligations for prior and future years of which are provided for on the basis of
actuarial calculations. The funding of the Dutch Company's plan is made by way
of annual premiums to an insurance company.
FOREIGN CURRENCY TRANSACTIONS
Assets, liabilities, revenue, expenses, gains or losses arising from
foreign currency transactions are recorded in the functional currency of the
recording entity at the exchange rate in effect at the date of the transaction.
At each balance sheet date, recorded balances denominated in a currency other
than the recording entity's functional currency are translated at the
approximate exchange rate prevailing at that date. The resulting exchange gains
and losses are recorded in the results of operations.
TRANSLATION OF FOREIGN COMPANIES' FINANCIAL STATEMENTS
Financial statements of the non-Dutch group entities are translated into
Dutch Guilder equivalents as follows:
o Balance sheet items are translated at the approximate exchange rate
prevailing at the balance sheet date.
o Income statement items are translated at the average exchange rate for
the year.
Translation results therefrom are recorded in "Other Comprehensive Income'.
3. INVENTORIES
Inventories consist of the following:
UNAUDITED
DECEMBER 31, JUNE 30,
(NLG 000'S) 1997 1998
------------- ----------
Work in process and semi-manufactured
goods................................ 6,744 2,784
Finished goods....................... 8,467 8,721
------------- ----------
15,211 11,505
Less: reserve for slow-moving and
obsolete products.................... (4,800) (5,044)
------------- ----------
Total................................ 10,411 6,461
============= ==========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (NLG 000's):
UNAUDITED
DECEMBER 31, JUNE 30,
1997 1998
------------- ----------
Land and buildings................... 12,200 2,613
Machinery and equipment.............. 280 --
Other................................ 7,134 4,480
------------- ----------
19,614 7,093
Less: accumulated depreciation....... (11,067) (3,401)
------------- ----------
Net property, plant and equipment.... 8,547 3,692
============= ==========
Depreciation expense amounts to 2,044 for the year ended December 31, 1997
and 437 for the period ended June 30, 1998 (unaudited).
F-9
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Land and buildings include a building in France under capital lease. At
December 31, 1997, the cost value amounted to 2,613 and accumulated depreciation
to 395. Depreciation expenses are included in total depreciation expense.
The production plant and related fixed assets of Enraf-Nonius' location at
Brunssum (with a book value at December 31, 1997 of 4.5 million) have been
transferred during 1998 to a Delft Instruments Company.
5. INVESTMENTS IN AFFILIATES
Investments in affiliates represents 40,000 shares (40%) of the issued and
outstanding shares of Enraf-Nonius Medical Equipment Co. Ltd., Thailand, and 600
shares (25%) of Stas Doyer Hydrotherapie S.A., France. Both are sales companies.
The Group's equity in the results of operations of these affiliates is not
material and has been included in other financial income and expense.
6. BANK OVERDRAFT
As at June 30, 1998 the bank overdraft is secured by a pledge of accounts
receivable (December 31, 1997 unsecured).
7. LONG-TERM DEBTS
The long-term debts consist of an interest bearing 7-year debt of NLG
3,320,000 and a non-interest bearing 7-year debt of NLG 4,000,000, both payable
to Delft Instruments group companies.
The repayment of the interest bearing debt is dependent on the payment of
certain pension obligations of a German Delft Instruments group company. The
interest rate is equal to the interest rate used by the German Pension Insurance
Authority.
The repayment of the non-interest bearing debt is dependent on the payment
of certain restructuring costs of two Dutch Delft Instruments group companies.
Aforementioned long-term debts are secured by a first right of pledge on
the Enraf-Nonius intellectual property rights (trade marks, patent rights and
related copyrights).
8. PENSION OBLIGATIONS
The Group's entities are assessed pension contributions by their respective
countries' State pension funds. All obligations under these plans are paid by
the employees.
All of the Dutch entity's employees over the age of 25 are participants in
that country's Pension Fund for the Dutch Metal Industry. This is a
multi-employer plan. Pension contributions assessed by this plan and expensed
during 1996 and 1997 were approximately NLG 232,000 and NLG 260,000,
respectively. Pension expense accrued for anticipated assessments for the six
months periods ended June 30, 1998 and 1997 are NLG 135,000 and NLG 130,000,
respectively (unaudited).
F-10
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Approximately, 10% respectively 80% of the employees of the Dutch and
German entities participate in a defined benefit plan. The following table sets
forth the funded status and net pension expense of these plans as of and for the
year ended December 31, 1997. Pension expense recognized under these plans for
the six months periods ended June 30, 1998 and 1997 was NLG 66,000 and NLG
100,000, respectively (unaudited).
NLG '000
----------
ABO -- Accumulated Benefit
Obligations.......................... 1,550
----------
PBO -- Projected Benefit
Obligations.......................... 1,870
MVA -- Marketable Value of Assets.... (123)
----------
Funded status........................ 1,747
Unrecognized loss.................... 77
Prepaid pension costs................ NA
----------
UTA -- Unfunded transitional
amount............................... 1,824
==========
Service costs for 1997 were some NLG 100,000. The individual components
thereof were not material.
Below is a summary of significant actuarial assumptions used:
o Discount rates................. 6%
-----------
o Rates of increase in
compensation levels -- general
increase............................. 1.75-2%
-----------
o Rates of increase in
compensation levels -- specific
increase............................. 0-2%
-----------
o Mortality tables............... 1982/1990
-----------
o Withdrawal..................... 10-50%
===========
9. INCOME TAXES
Through December 31, 1997, Enraf-Nonius B.V. was included in the
consolidated tax return of Delft Instruments NV. All deferred tax assets and
liabilities were accounted for by the parent and current tax assets and
liabilities were settled through intercompany accounts at a nominal tax rate of
35%.
Through December 31, 1997, Enraf-Nonius S.A. was included in the
consolidated tax return of Delft Instruments S.A., a subsidiary of Delft
Instruments N.V.
German and Belgian companies each operated as separate tax paying entities.
As a result of the transaction described in Note 16 -- Subsequent Event,
the Dutch and French entities in the Group ceased participating in their
parent's tax returns effective from January 1, 1998.
The companies in the Group have substantial deferred tax assets arising
primarily from net operating costs carry-forwards which were not utilized in
their tax returns or those of their parent companies. As of December 31, 1997,
such unutilized carry-forwards were approximately NLG 10 million. As of June 30,
1998, such amounts approximated NLG 14 million (unaudited). All deferred tax
assets of the Group have been fully offset by a valuation allowance due to the
uncertainty of their realization.
F-11
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS
LEASES
Leases are generally for buildings, cars, computers and office equipment.
As of December 31, 1997, future minimum lease commitments to which Group
entities are committed consisted of the following:
CAPITAL OPERATING
(NLG 000'S) LEASE LEASE
- ---------------------------------------- --------- ---------
1998.................................... 354 1,030
1999.................................... 354 892
2000.................................... 354 687
2001.................................... 354 517
2002.................................... 354 458
Thereafter.............................. 1,420 867
--------- ---------
Total, including interest............... 3,190 4,451
=========
Amount representing interest............ (1,104)
---------
Net amount (long-term and short-term
portions)............................. 2,086
=========
The interest rate of the capital lease of the French building amounts to
10% approximately.
Total rental expense was approximately NLG 0.9 million and NLG 0.9 million
for the years ended December 31, 1997 and 1996. Rental expense was NLG 0.8
million and NLG 0.4 million for the six months periods ended June 30, 1998 and
1997, respectively (unaudited).
UNRECORDED PURCHASE OBLIGATIONS
In a 50/50 partnership with the Dutch Government the Company entered into a
five year contract in 1997 with three local university research partners to
perform research and development activities in the physiotherapy field. The
total obligation to the Company and the government under the contract amounts to
approximately NLG 2.4 million. Of this amount at December 31, 1997, NLG 103,000
has been fulfilled and invoiced to the Company. The remaining amount is to be
spent over the remaining 4 years of which NLG 100,000 has been fulfilled at June
30, 1998 (unaudited).
11. CONTINGENCIES
LITIGATIONS AND CLAIMS
At December 31, 1997, the Group is subject to legal proceedings and claims
arising in the ordinary course of business. According to management, the
ultimate outcome thereof will not have a material adverse effect upon the
combined financial position and combined statements of deficiency of the Group.
12. CREDIT FACILITIES
On a yearly basis, the parent of the Enraf-Nonius companies, Delft
Instruments NV renegotiates credit agreements with various banks for the Delft
Instruments Companies, including the Group. Delft Instruments (internal bank)
provides loans to its various subsidiaries under the total credit facility and
allows overdraft facilities. The extent thereof is monitored by Delft
Instruments NV. At December 31, 1997, these short-term loans to the Company
amounted to NLG 29 million. In 1997, the interest rate amounted to some 4%.
At December 31, 1997, the Company had guarantees outstanding provided by
banks of NLG 1.3 million for performance and bid bonds.
F-12
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
13. RELATED PARTY TRANSACTIONS
AMOUNTS DUE TO AND FROM RELATED COMPANIES.
Delft Instruments Group Companies were related Companies up to May 29,
1998. From that date Henley Healthcare Group Companies are related Companies.
Receivables due to and from affiliates consist of the following at:
UNAUDITED
DECEMBER 31, JUNE 30,
(NLG 000'S) 1997 1998
- ---------------------------------------- ------------- ----------
Due to related companies................ 32,010 --
Less: due from related companies....... (4,266) (1,469)
------------- ----------
Total................................... 27,744 (1,469)
============= ==========
The amounts due to and from Delft Instruments Group Companies were settled
at May 29, 1998.
INCOME AND EXPENDITURES
UNAUDITED
DECEMBER 31, JUNE 30,
(NLG 000'S) 1997 1998
- ---------------------------------------- ------------- ----------
Net sales............................... 6,300 --
============= ==========
Interest expense........................ 1,110 740
Leverage interest received.............. (1,041) --
Group's share in holding costs.......... 2,233 --
Rent (net) and services................. 912 784
------------- ----------
Total................................... 3,214 1,524
============= ==========
14. NONMONETARY TRANSACTIONS
In 1996, the Company decided to ensure a consistent flow of components for
one of its cardio products by entering into an agreement with an Italian
manufacturer of small turbines. Agreed was, that the Company would trade for
each finished product in exchange for 3.3 turbines (the major component of the
finished product). The turbines were valued at cost, based on the calculated
cost price of the finished product. The Company was not as successful as
expected in the cardio segment, and components with a value of some NLG 900,000
have now been fully provided for.
15. YEAR 2000 ISSUE -- UNAUDITED
The Company's computer system has been reviewed with regard to the year
2000 issue. The findings of this review resulted in a plan of action and
financial systems are presently being updated by in-house staff. Total cost in
this regard is expected to be between NLG 20,000 and NLG 30,000 (unaudited) and
the project is expected to be finished in October 1998. The review showed, that
the impact of the year 2000 issue on the Company's order processing system is
likely to be minimal and no additional actions have been taken.
The embedded software in the Company's products has also been reviewed and
this showed that the products currently being sold or still being serviced will
not be effected by the year 2000 issue.
16. SUBSEQUENT EVENT
Per agreements dated March 6, 1998 and May 29, 1998, Delft Instruments NV
has sold the Enraf-Nonius companies to Henley Healthcare, Inc., of Sugar Land,
Texas, USA, a company traded on the NASDAQ SmallCap Market.
F-13
<PAGE>
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The production plant, machinery (with a book value at December 31, 1997 of
NLG 4.5 million) and personnel of Enraf-Nonius B.V.'s location at Brunssum were
not take over, but transferred to another Delft Instruments company, with whom
an OEM contract was concluded. This deal is partly financed by a subordinated
loan of NLG 9 million, granted by Delft Instruments to Henley Healthcare B.V., a
newly established Dutch holding company.
In the first quarter 1998, as a pilot project for the Company's former
holding company Delft Instruments, the Company entered into an agreement with a
warehousing company in order to outsource the logistics department. After the
acquisition by Henley Healthcare, the strategic decision was made to keep the
logistic activities in house. The exit cost for this contract are still being
negotiated, but are likely to be between NLG 500,000 and NLG 1,500,000
(unaudited).
F-14
<PAGE>
EXHIBITS
Exhibit
No.
-------
*2.1 Agreement for the Sale and Purchase of the Enraf-Nonius Companies, dated
March 6, 1998, by and between Henley Healthcare, Inc. 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 Oldelft B.V.,
Dimeq Verwaltungs GMBH Berlin and N.V. Verenigde
InstrumentenfabriekenEnraf-Nonius.
*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 Oldelft B.V., Dimeq
Verwaltungs GMBH Berlin and N.V. Verenigde Instrumentenfabrieken
Enraf-Nonius.
*10.1 Subordinated Loan Agreement dated as of May 29, 1998, by and between
Delft Instruments Nederland B.V., Henley Healthcare B.V., and Henley
Healthcare Inc.
*10.2 Fourth Amendment to Amended and Restated Loan Agreement, dated effective
May 29, 1998, by and between Henley Healthcare, Inc. and Comerica
Bank-Texas.
*10.3 Amendment to Subordination Agreement dated as of May 29, 1998 by and
between Maxxim Medical, Inc., Henley Healthcare, Inc. and Comerica
Bank-Texas.
*10.4 Joinder Agreement dated effective as of May 29, 1998, executed by Henley
Healthcare, B.V.
*10.5 Second Modification to Convertible Subordinated Promissory Note, dated
as of June5, 1998, between Henley Healthcare, Inc. and Maxxim Medical,
Inc.
*10.6 Revolving Loan Agreement with Bank of Artesia.
- -----------------
* Previously included with Form 8-K/A filed on August 14, 1998.
