UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A-2
(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 (IRS Employer Identification No.)
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]
<PAGE>
PART I. FINANCIAL INFORMATION
THIS REPORT INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS REPORT ARE FORWARD LOOKING
STATEMENTS. SUCH FORWARD LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION,
STATEMENTS UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" REGARDING THE
COMPANY'S ESTIMATE OF SUFFICIENCY OF EXISTING CAPITAL RESOURCES AND ITS ABILITY
TO RAISE ADDITIONAL CAPITAL TO FUND CASH REQUIREMENTS FOR FUTURE OPERATIONS AND
ACQUISITIONS. ALTHOUGH THE COMPANY BELIEVES THE EXPECTATIONS REFLECTED IN SUCH
FORWARD LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS REFLECTED IN SUCH FORWARD LOOKING STATEMENTS WILL PROVE TO HAVE
BEEN CORRECT. THE ABILITY TO ACHIEVE THE COMPANY'S EXPECTATIONS IS CONTINGENT
UPON A NUMBER OF FACTORS WHICH INCLUDE (I) 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 7-10
2
<PAGE>
HENLEY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(Unaudited)
<S> <C> <C>
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
------------- -----------------
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
------------- -----------------
TOTAL ASSETS .......................................................... $ 52,499,148 $ 26,155,717
============= =================
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
============= =================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
HENLEY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998 1997
----------- -----------
<S> <C> <C>
NET SALES ......................................... $ 9,064,935 $ 3,844,525
COST OF SALES ..................................... 5,740,745 2,152,982
----------- -----------
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 ............................... $ (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
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
HENLEY HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 1997
------------ ------------
<S> <C> <C>
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
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
HENLEY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
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 discontinued 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 INVESTIGATING 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 debit ................................ 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
<PAGE>
HENLEY HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited interim consolidated financial statements of
Henley Healthcare, Inc. (the "Company"), have been prepared in accordance with
generally accepted accounting principles and the rules of the Securities and
Exchange Commission (the "SEC"), and should be read in conjunction with the
audited consolidated financial statements and notes thereto contained in the
Company's latest Annual Report filed with the SEC on Form 10-KSB. In the opinion
of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. Notes to the consolidated financial
statements, which would substantially duplicate the disclosure contained in the
audited consolidated financial statements for the most recent fiscal year, 1997,
as reported in the Form 10-KSB, have been omitted.
2. ACQUISITIONS:
In January 1998, the Company acquired all of the issued and outstanding
common stock of Garvey Company, a Minnesota corporation, as a wholly-owned
subsidiary, for an estimated purchase price of approximately $880,000, plus
related acquisition costs of approximately $40,000. The purchase price was paid
by the issuance of 120,308 shares of the Company's common stock. The acquisition
was accounted for as a purchase.
In February, 1998, the Company purchased substantially all of the assets
and assumed certain liabilities associated with AMC Acquisition Corp., a Texas
corporation, for an estimated purchase price of approximately $450,000, plus
related acquisition costs of approximately $30,000. The purchase price was paid
by the issuance of 68,000 shares of common stock. The acquisition was accounted
for as a purchase.
On May 29, 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Enraf-Nonius, B.V. ("Enraf"), a wholly-owned
subsidiary of Delft Instruments N.V.("Delft"). Enraf specializes in the
development, manufacture and sale of medical products, including ultra-sound and
electrical stimulation, used in pain management, physical therapy and
rehabilitation. The purchase price for Enraf was approximately $15 million plus
acquisition costs of approximately $1 million. The purchase was financed with
short and long term notes totaling approximately $7 million from Delft and $8
million from bank financing. The short term notes were repaid by the Series B
Preferred Offerings that were funded in July and August 1998. The acquisition
was accounted for as a purchase.
The purpose price for Enraf has been allocated as follows:
Purchase price ................................................ $ 15,000,000
Acquisition costs ............................................. 1,000,000
------------
16,000,000
------------
FV of assets acquired ......................................... 12,000,000
FV of liabilities assumed ..................................... (13,000,000)
------------
Net liabilities acquired ...................................... (1,000,000)
------------
Excess of cost over fair value of net liabilities acquired
(goodwill) ................................................. $ 17,000,000
============
7
<PAGE>
The purchase allocation above is preliminary in nature pending the
ultimate resolution of contingencies related to the contemplated sale by the
Company of certain assets acquired in the purchase of Enraf-Nonius. Estimates
have been made, and included in the purchase allocation, regarding the
difference between the expected proceeds from the sales and the fair market
values of the related net assets. To the extent the actual amounts differ from
these estimates the net assets and goodwill amounts recorded will be adjusted
accordingly.
The following summarized pro forma (unaudited) information assumes the
acquisition of Enraf had occurred on January 1, 1998.
FOR 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.
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.
8
<PAGE>
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.
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
9
<PAGE>
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 $6,639,581
========== ==========
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company's principal business strategies are to (i) expand distribution
channels and explore new markets, (ii) consolidate the highly-fragmented
physical therapy and rehabilitation industry by pursuing strategic acquisitions
that complement existing product lines and increase market share, (iii) maximize
the utilization of existing manufacturing facilities for increased productivity,
(iv) improve profitability, (v) reduce long-term indebtedness, and (vi) seek
market clearance from the U.S. Food and Drug Administration for the MicroLight
830(TM).
Prior to April 30, 1996, the Company was primarily engaged in the development
and application for marketing clearance of the MicroLight 830(TM). Beginning
with the acquisition of Maxxim's Henley Division, the Company has pursued a
strategy of consolidating the highly fragmented physical therapy and
rehabilitation industry. Since that time, the Company has grown significantly as
a result of additional acquisitions. All acquisitions have been accounted for
under the purchase method of accounting for business combinations and
accordingly, the results of operations for such acquisitions are included in the
Company's financial statements only from the applicable date of acquisition. As
a result, the Company believes that 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.
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<PAGE>
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. The Company expects
these acquisition integration costs to continue over the last six months of 1998
at a level consistent with that experienced through June 30, 1998 as the recent
acquisitions continue to be folded into the Company's existing operations. As a
result, the Company expects operating expenses as a percentage of revenues over
the last six months of 1998 to remain relatively constant. 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.
EXPECTED IMPACT OF ENRAF ACQUISITION ON PROFITABILITY
With the acquisition of Enraf, the Company expects to add approximately $30.0
million to annual sales. Historically, Enraf has experienced chronic operating
losses due to operating expenses exceeding the related revenue base. The
Company's management has identified numerous areas in which it believes it can
significantly reduce Enraf's historical level of operating costs while also
creating a synergistic effect of combining Enraf's distribution network with the
Company's existing product lines to increase revenue and gross profit.
Specifically, management has implemented plans to: (1) reduce excessive research
and development, marketing and consultant costs from which Enraf had not been
generating an adequate return; (2) reallocate certain technical expertise
included in Enraf's workforce to enhance the continued development of certain of
Henley's core products; and (3) dispose of certain operations of Enraf that have
historically incurred operating losses. The results of the Company's initiatives
with respect to improving profitability at Enraf have been evidenced in Enraf's
operating results since acquisition. During the four-month period from
acquisition through September 30, 1998, Enraf has generated revenues of $9.7
million which contributed gross profit of $3.8 million or 39.1% and net income
of $253,000 or 2.6%. Operating expenses for the four-month period ended
September 30, 1998, were approximately $3.3 million or 33.7% as compared to
59.4% and 58.2% for the six months ended June 30, 1998 and the year ended
December 31, 1997, respectively.
Effective January 1, 1999, Enraf will assume the European, Australian and
African sales and marketing of Henley's core products. The international sales
of Henley's core products should increase because of the established
distribution system of Enraf. Henley, in turn, will be adding Enraf's sound and
stim products to their line of products available in the United States, Mexico,
South America and Asia.
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<PAGE>
Management believes that the successful implementation of cost reductions and
the potential synergies to be gained by combining Henley's product pipeline with
Enraf's international distribution system will enable Enraf to generate positive
cash flow to sustain its operations and to service the related acquisition debt.
LIQUIDITY AND CAPITAL RESOURCES
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 Delft 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 Year 2000 (the "Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment, software and other devices with imbedded technology that are
time-sensitive, such as products, alarm systems and telephone systems, may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, temporary inability to process data,
and may materially impact the Company's financial condition.
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<PAGE>
The Company has undertaken various initiatives intended to ensure that it is
prepared for the Y2K issue. The Company is in the process of assessing its state
of readiness. Presently, the Company is reviewing its scientific equipment,
computer systems and related software to identify and determine the Y2K
readiness of the Company's systems. This review is being performed by internal
teams from various disciplines within the Company. These teams are currently
evaluating the Company's Y2K issues, and, if necessary, developing remediation
plans. As a part of this review the Company will determine the known risks
related to the consequences of a failure to correct any Y2K deficiencies. The
Company has not initiated formal communications with material third parties to
determine the extent to which the Company may be vulnerable to those third
parties' failure to remediate their Y2K problems. However, the Company is
presently not aware of any Y2K issues that have been encountered by any third
party, which could materially affect the Company's operations.
If necessary, during 1999, the Company will develop a contingency plan to
address potential Y2K issues. This contingency plan will likely address problems
that the Company identifies during the course of its remediation efforts and
reasonably foreseeable problems that may arise as a result of Y2K, including,
but not limited to the performance of the Company's computer system. The
contingency plan will be continually refined, as additional information becomes
available. However, it is unlikely that any contingency plan can fully address
all events that may arise.
The Company estimates that the costs associated with the Y2K issue will not be
material, and as such will not have a significant impact on the Company's
financial position or operating results. However, the failure to correct a
material Y2K problem could result in an interruption in the Company's normal
business activities or operations. Such failure could materially and adversely
affect the Company's results of operations, liquidity and financial condition.
The Enraf-Nonius 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. 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 Enraf-Nonius 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.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to adopt the Euro as their common legal currency. Following the
introduction of the Euro, the local currencies are scheduled to remain legal
tender in the participating countries until January 1, 2002. During this
transition period, goods and services may be paid for using either the Euro or
the participating country's local currency. Thereafter, the local currencies
will be canceled and the Euro currency will be used for all transactions between
the eleven participating members of the European Union. The Euro conversion
raises strategic as well as operational issues. The conversion is expected to
result in a number of changes, including the stimulation of cross-border
competition by creating cross-border price transparency. 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
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<PAGE>
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.
The Euro conversion raises strategic as well as operational issues. The
conversion is expected to result in a number of changes, including the
stimulation of cross-border competition by creating cross-border price
transparency. The Company is evaluating the implications of the Euro conversion
and is uncertain as to the potential impact on its operations.
15
<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
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<PAGE>
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 liabilities (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 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.)
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<PAGE>
EXHIBIT
NO. DESCRIPTION
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.
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.
- ------------------
* Included with the Company's Form 10-QSB/A-1 as filed on August 19, 1998.
** Included with the Company's initial Form 10-QSB as filed on August 14, 1998.
18
<PAGE>
(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.
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: January 27, 1999 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)
19
<PAGE>
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.)
20
<PAGE>
EXHIBIT
NO. DESCRIPTION
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.
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.
- ------------------
* Included with the Company's Form 10-QSB/A-1 as filed on August 19, 1998.
** Included with the Company's initial Form 10-QSB as filed on August 14, 1998.
21
