<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-16453
HEARx LTD.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2748248
- ------------------------------------------- ----------------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
471 Spencer Drive, West Palm Beach, Florida 33409
- ------------------------------------------- ----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (407) 478-8770
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Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
--- ---
On March 31, 1995, 42,191,402 shares of the Registrant's Common Stock were
outstanding.
<PAGE> 2
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets -
March 31, 1995 and December 30, 1994 3 - 4
Consolidated Statements of Operations -
Three Months ended March 31, 1995 and April 1, 1994 6
Consolidated Statements of Cash Flows -
Three Months ended March 31, 1995 and April 1, 1994 7 - 8
Notes to Consolidated Financial Statements 9 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 15
PART II. OTHER INFORMATION:
Item 6. Exhibits and reports on Form 8-K 16
Signatures 16
<PAGE> 3
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 30,
1995 1994
------------ ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 306,194 $ 329,007
Accounts receivable, less allowance for doubtful
accounts of $151,495 and $154,330 1,593,642 862,868
Receivable from private placement - 500,000
Inventories 301,603 337,564
Prepaid expenses and other current assets 311,532 43,780
------------ ------------
Total current assets 2,512,971 2,073,219
------------ ------------
Property and equipment:
Equipment, furniture and fixtures 2,250,257 1,975,857
Leasehold improvements 785,675 779,347
------------ ------------
3,035,932 2,755,204
Less accumulated depreciation and amortization 1,844,464 1,779,850
------------ ------------
Net property and equipment 1,191,468 975,354
Other 472,618 456,394
------------ ------------
1,664,086 1,431,748
------------ ------------
$4,177,057 $3,504,967
============ ============
(Continued)
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 4
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 30,
1995 1994
------------ ------------
(unaudited) (audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
Current portion of long-term debt $ 278,230 $ 479,123
Current portion of obligations
under capital leases 51,719 43,056
Accounts payable - trade 1,117,137 837,225
Accounts payable - major shareholder 831,801 834,683
Accrued expenses 285,483 502,332
------------ ------------
Total current liabilities 2,564,370 2,696,419
------------ ------------
Long-term debt, net of current portion - other 686,115 652,602
Long-term debt, net of current portion -
principal shareholder 1,675,000 1,675,000
Obligations under capital leases,
net of current portion 37,357 48,597
------------ ------------
Total long-term debt 2,398,472 2,376,199
------------ ------------
Other long-term liabilities 164,667 -
------------ ------------
(Capital Deficit) Stockholders' Equity
Non-Redeemable Preferred Stock:
$1 par; authorized 2,000,000 shares,
issued and outstanding
1992, Senior A, 30,000 shares; 30,000 30,000
1992, Senior B, 22,500 shares; 22,500 22,500
1993, Senior D, 14,926 shares; 14,926 14,926
1993, Senior G, 14,926 shares; 14,926 14,926
(Total aggregate amount of liquidation
preference for the above - $5,000,000)
------------ ------------
82,352 82,352
Series C, 1992, 10,000 shares; 10,000 10,000
1994, Convertible, 5,000 shares; 5,000 5,000
------------ ------------
97,352 97,352
<PAGE> 5
Common stock, $.10 par;
authorized 75,000,000 shares, issued: 42,191,402 4,219,140 4,167,235
Additional paid-in capital 20,748,664 20,216,109
Accumulated deficit (25,991,986) (26,021,350)
Unamortized deferred compensation (23,622) (26,997)
------------ ------------
Total (capital deficit) stockholders' equity (950,452) (1,567,651)
------------ ------------
$ 4,177,057 $ 3,504,967
============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
AND APRIL 1, 1994
<CAPTION>
1995 1994
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Net Sales $ 3,327,028 $ 1,237,462
------------ ------------
Costs and expenses:
Cost of products sold 1,061,639 446,804
Personnel costs 1,306,604 747,594
Advertising, marketing, and selling 281,030 121,391
Occupancy & facility expense 466,315 280,235
Depreciation and amortization 74,161 29,104
General and administrative 101,212 108,510
------------ ------------
Total costs and expenses 3,290,961 1,733,638
------------ ------------
Profit/(loss) from operations 36,067 (496,176)
------------ ------------
Other (charges) credits:
Interest income 1,446 1,460
Interest expense (30,179) (33,705)
Miscellaneous 22,030 8,077
------------ ------------
(6,703) (24,168)
------------ ------------
Net profit/(loss) $ 29,364 ($ 520,344)
============ ============
Net profit/(loss) per Common Share $ 0.00 ($ 0.02)
============ ============
Weighted average number of shares of common
stock outstanding 39,003,252 31,268,443
============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 7
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND APRIL 1, 1994
Increase (decrease) in cash and cash equivalents
<CAPTION>
1995 1994
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net profit/(loss) $ 29,364 ($520,344)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 74,161 29,104
Non-cash expense to
advisors/consultants/public relations 43,051 25,000
Non-cash expense for computerized systems 82,333 -
Non-cash expense for executive stock bonuses 119,076 -
(Increase) decrease in (net of
discontinued operations):
Accounts and notes receivable (230,774) (266,691)
Inventories 35,961 37,475
Prepaid expenses and other current assets (267,752) (17,073)
Deferred charges and other (12,849) 42,698
Increase (decrease) in:
Accounts payable 277,030 249,266
Accrued expenses (216,849) (124,540)
Accrued costs for restructuring and
discontinued operations - (401,427)
Other long-term liabilities 164,667 -
------------ ------------
Net cash provided (used) in operating activities 97,419 (946,532)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (295,983) (13,184)
Proceeds from sale of property and equipment 5,708 109,740
Discontinued operations - 16,724
------------ ------------
Net cash provided (used) by investing activities (290,275) 113,280
------------ ------------
(Continued)
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 8
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND APRIL 1, 1994
Increase (decrease) in cash and cash equivalents
<CAPTION>
1995 1994
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of:
Long-term debt-principal stockholder - 500,000
Convertible subordinated debentures - other - 150,000
Principal payments:
Long-term debt (49,830) (6,830)
Forgiveness of long-term debt (117,550) -
Capital lease obligations (2,577) (17,364)
Canceled debt for long-term consultant contract - (100,000)
Proceeds from issuance of capital stock, net of
offering costs 340,000 -
------------ ------------
Net cash provided by financing activities 170,043 525,806
------------ ------------
Net increase (decrease) in cash and
cash equivalents (22,813) (307,446)
Cash and cash equivalents at beginning of period 329,007 552,305
------------ ------------
Cash and cash equivalents at end of period $306,194 $244,859
============ ============
<FN>
Supplemental cash flow information:
Cash equivalents include temporary cash investments which have an original
maturity of ninety days or less.
See notes to consolidated financial statements
</TABLE>
<PAGE> 9
HEARx LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- -------------------------------------------------------------------------------
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended December 30, 1994. All adjustments, consisting of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
statement of results for interim periods have been made.
Note 1. The Company:
Hearx, Ltd. ("HEARx" or "the Company"), a Delaware corporation, was organized
in April 1986 for the purpose of creating a nationwide chain of retail centers
(HEARx Centers) to serve the needs of the hearing impaired.
Note 2. Acquisition:
On December 30, 1994, the Company entered into a purchase agreement to acquire
certain assets and assume certain liabilities of eighteen (18) Florida retail
hearing aid centers from Hearing Health Services, Inc. ("HHS"). The purchase
price consisted of 2,500 HEARx 1994 Convertible Preferred Shares (conversion
ratio of 1 preferred share to 1,000 Common) valued at $200 per share ($500,000)
plus $61,569 of acquisition costs. The estimated fair value of the net assets
acquired was $492,224, resulting in cost in excess of fair value of net assets
acquired of $69,345, which will be amortized over fifteen (15) years using the
straight-line method. The acquisition was accounted for under the purchase
method of accounting. Since the purchase occurred on December 30, 1994, the
results of operations of the acquired centers are included in the Company's
financial results for 1995 but are not included in the Company's operations for
1994.
Note 3. Expanded Managed Care Program:
During the latter part of 1994, the Company signed seven (7) contracts with
managed care organizations in its expanded market areas. HEARx is the only
Florida company that has agreements with virtually all of the managed care
companies in the state. Most of these new programs commenced in early 1995 as
the Company reflected incremental revenues for the start-up of these new
contracts. Several of these contracts are unique in that HEARx receives a
fixed fee per member per month, regardless of the number of hearing aids sold
(a capitated program). At the end of each calendar year based on documented
utilization, an adjustment is made in the per capita payment automatically for
the next calendar year.
Note 4. Private Placements:
On December 30, 1994, the Company and three limited partnerships affiliated
with Hearing Health Services, Inc. (collectively the "Investors") entered into
a stock purchase agreement pursuant to which the Investors purchased 2,500
shares of 1994 Convertible Preferred Stock, par value $1.00 per share at a
total cash purchase price of $500,000 ($200 per share), to be payable on
January 4, 1995. This amount was recorded as a separate receivable on the
December 30, 1994 balance sheet. This receivable has since been collected as
<PAGE> 10
HEARx LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- -------------------------------------------------------------------------------
the Investors paid the amount on January 4, 1995. These shares have the same
rights, privileges, and conversion features as the above mentioned shares (see
Note 2) of 1994 Convertible Preferred Stock.
A new private placement for the sale of 1,000,000 shares of Common Stock at
$.85 per share (total of $850,000) was established during the first quarter of
1995 whereas 40% of the total private placement ($340,000) has been subscribed
and/or paid.
Note 5. Property and Equipment:
During March, 1995, the Company entered into an agreement for the development
of a computerized system for the Company's network of hearing centers at a
price of $247,000. This amount was capitalized and recorded into the Property
and Equipment assets and will be depreciated once all other associated fixed
assets and the system has been installed and become operational.
Note 6. Long-term Debt:
The principal stockholder/officer has a loan with the Company for $1,675,000.
This loan is subordinated to all other indebtedness of the Company. The
interest rate is prime plus 3% (currently 11.5%).
As a result of selling a certain number of hearing aids over one year, the
Company was successful in reducing long term debt payables of $60,000 during
March, 1995 to one of its manufacturers.
Note 7. (Capital Deficit) Stockholders' Equity:
Senior Preferred Stock - The shares of Senior Preferred Stock have 100 votes
per share and, unless otherwise required by Delaware law, vote with the holders
of other shares of Capital Stock as one class. The shares of Senior Preferred
Stock have no right to dividends except pari passu with the Common Stock based
on the number of shares of Common Stock into which they are then convertible
when, as and if a dividend is declared by the Board of Directors. The Senior
Preferred Stock is senior to all other shares of capital stock of the Company
in the event of the liquidation, dissolution, or winding up of the Company.
Each share of Senior Preferred Stock is convertible at the option of the holder
into 100 shares of Common Stock, i.e., a total of 3,000,000 shares in the case
of Senior A, 2,250,000 shares in the case of Senior B, 1,100,000 shares in the
case of Senior C, 1,492,600 shares in the case of Senior D, 1,492,600 shares
in the case of Senior E, 800,000 shares in the case of Senior F, and 1,492,600
shares in the case of Senior G. The shares of Senior Preferred Stock will be
automatically converted into shares of Common Stock upon the listing of the
shares of Common Stock on the American or New York Stock Exchange. The shares
of Senior Preferred Stock are not subject to either mandatory or optional
redemption by the Company. At March 31, 1995, 3M held an option to purchase
14,926 shares of Senior E Preferred Stock at a price of $67 a share and 8,000
shares of Senior F Senior Preferred Stock at a price of $125 a share.
Additionally, 3M holds warrants to acquire Senior C Preferred Stock at $1.10
<PAGE> 11
HEARx LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- -------------------------------------------------------------------------------
per share. The aggregate amount for the liquidation preference per share is
as follows: Senior A Preferred - $50 per share; Senior B, D and G - $67 per
share for a total of $5,000,000.
Senior A - On October 31, 1991 pursuant to an agreement ("Stock Purchase
Agreement") with the Company, Minnesota Mining and Manufacturing Company ("3M")
purchased 30,000 shares of the Company's Senior Preferred Stock, Series A, par
value $1.00 per share ("Senior Preferred, Series A") for $1,370,000 in cash and
$130,000 in credits against outstanding receivables. Further, 3M received the
right to acquire 22,500 shares of Senior Preferred Stock, Series B, ("Senior B
Preferred"), for $1,500,000 on or before September 30, 1992.
Under the Stock Purchase Agreement, the Company has agreed not to seek capital
from any person, other than financial investors or through a public offering,
as opposed to persons having an interest in the hearing aid industry, without
3M's prior written approval. The principal stockholder/officer has agreed not
to sell for five years any shares of Common Stock beneficially owned by himself
or securities convertible into or exchangeable for Common Stock. He will
afford 3M (a) a right of first refusal to purchase all or any portion of such
shares or securities (b) the right to approve any potential purchaser, which
approval is not to be withheld unreasonably. The principal
stockholder/officer's agreement does not apply to the sale in the open market
or gift of up to 5% of his security holdings (on a fully converted basis).
Simultaneously with execution of the Stock Purchase Agreement, 3M and the
Company entered into a new arrangement in which 3M appointed the Company as
3M's exclusive distributor (with the exception of existing distributorships)
for programmable hearing aids for a five year period ending December 31, 1997
with an option for 3M to renew for an additional five years. Among other
things, the Company has certain minimum purchase obligations.
Senior B - On May 15, 1992, 3M exercised its right to acquire 22,500 shares of
Senior B Preferred for $1,500,000 cash pursuant to the Stock Purchase
Agreement. As a result of this transaction, the 10,000 shares of Series B
Preferred Stock held by the principal stockholder/officer were converted into
2,250,000 share of Common Stock of the Company.
Senior C - During February 1991, the Company and 3M entered into an arrangement
pursuant to which, among other things, the Company marketed 3M's "Memory Mate"
brand hearing aids and certain other 3M hearing related products (on a non-
exclusive basis). 3M furnished one of these systems in each of the Company's
retail locations (valued at $50,000), and 3M paid the Company a test marketing
fee of $300,000. In connection with these transactions and at its sole option,
3M has been granted the right, in exchange for transfer of title to the fitting
systems and agreement to forego repayment of the funds advanced as a test
marketing fee, to acquire for a nominal consideration 11,000 shares of Senior
Preferred Stock, Series C.
Senior D and G - On June 28, 1993, 3M exercised its right to acquire 14,926
shares of Senior Preferred Stock, Series D, par value $1.00 per share ("Senior
D Preferred") for $1,000,000 and to acquire 14,926 shares of Senior Preferred
Stock, Series G, par value $1.00 per share ("Senior G Preferred") for
$1,000,000 (total of $2,000,000). The Board of Directors modified the
<PAGE> 12
HEARx LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- -------------------------------------------------------------------------------
conversion price of the Series G to $.67 (the same as the conversion price of
the Series D).
Senior E - During late 1993 and early 1994, 3M paid $400,000 as a partial
payment towards the exercise of Senior Preferred Stock, Series E, par value
$1.00 per share ("Senior E Preferred"). The Company expects to consummate the
transaction during 1995.
Series C Preferred Stock - The Series C Preferred Stock has 104 votes per share
(1,040,000 votes total) and, except as otherwise required by Delaware law,
votes with the holders of shares of Senior Preferred Stock and Common Stock as
one class. The Series C Preferred Stock is junior to the Senior Preferred
Stock and senior to the Common Stock in the event of liquidation, dissolution
or winding up of the Company. The Series C Preferred Stock may be redeemed at
the sole option of the Company at a redemption price of $70 per share. During
April 1992, the principal stockholder/officer canceled a 10% Subordinated
Debenture in the amount of $500,000, a loan in the principal amount of
$100,000, and $100,000 of accrued interest. In return, the Company issued to
the principal stockholder 10,000 shares of Series C Preferred Stock, par value
$1.00 per share.
1994 Convertible Preferred Stock - In connection with the acquisition described
in Note 2, HHS was issued 2,500 shares of the Company's 1994 Convertible
Preferred Stock, par value $1.00 per share. The 1994 Convertible Preferred
Stock has 1,000 votes per share (2,500,000 votes total) and also has voting
rights and powers equal to the voting rights and powers of the Common Stock.
Each share is convertible at any time at the option of the holder. In
connection with this transaction, HHS also received 2,500,000 ten year Common
Stock purchase warrants with an exercise price of $.25 per share with standard
anti-dilution rights. As also mentioned in Note 2 for Acquisitions, three
limited partnerships affiliated with HHS purchased another 2,500 shares of 1994
Convertible Preferred Stock, par value $1.00 per share at a total purchase
price of $500,000 ($200 per share). These shares have the same rights,
privileges, and conversion features as the above 2,500 shares.
As mentioned in Note 5, the Company entered into an agreement for the
development of a computerized system for the Company's network of hearing
centers at a price of $247,000. During March, 1995, the Company issued 131,733
shares of Common Stock (equivalent of $82,333 or 1/3 of the total purchase
price) to Alpha Bytes Computer Corporation of Toronto, Canada. The Company has
the option to pay for the remaining balance either in cash and/or Common Stock.
During March, 1995, the Company issued 200,000 shares of Common Stock for
$170,000 in funds received for the new private placement implemented in 1995.
During the quarter ended March 31, 1995, 90,896 shares of Common Stock
(equivalent to $119,076) were issued to certain Company's officers and
executives as bonuses.
During February, 1995, 73,530 shares (14,706 shares per group member) of Common
Stock were issued to the five members of the Advisory Group for their annual
rendered services to the Company (equivalent to $25,000).
<PAGE> 13
HEARx LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- -------------------------------------------------------------------------------
Note 8. Stock Option Plans:
Under the 1987 plan, as amended in April 1992, the Company's Board of
Directors, or a committee thereof, is authorized to grant options to purchase
an aggregate of 2,500,000 shares of the Company's Common Stock. Officers and
other key employees of the Company, other than Dr. Brown and individuals who
hold 10% or more of the Company's Common Stock, are eligible to receive either
incentive stock options under the Internal Revenue Code or non-incentive stock
options which do not meet such requirements. The option price for non-
incentive stock options may be any price determined by the Board of Directors
or the Committee. The option price for incentive stock options may not be less
than the fair market value of the shares at the time the option is granted.
In April 1993, the stockholders of the Company approved the adoption of the
Hearx Ltd. Non-Qualified Stock Option Plan for Non-Employee Directors
("Directors Plan"). The purpose of the Directors Plan is to increase the
proprietary interest of non-employee directors in the Company by granting non-
qualified stock options that will promote long-term shareholder value. Grants
under the Directors Plan may not exceed 500,000 shares of Common Stock in the
aggregate and may be made until the Annual Meeting of Stockholders in 2003.
Each year, upon election to the Board, each non-employee director shall be
granted a 10-year non-qualified stock option ("Option") to acquire 15,000
shares of Common Stock. The exercise price shall be one hundred percent (100%)
of the fair market value of the shares as of the close of business on the
business day immediately prior to the date on which the Option is granted.
The Board of Directors has adopted a Stock Bonus Plan ("Bonus Plan"). It is
the purpose of the Bonus Plan to create an incentive for senior management
personnel to work to the very best of their abilities for the achievement of
the Company's strategic objectives. To accomplish this purpose, the Board of
Directors intends to award shares of Common Stock to eligible employees. The
Bonus Plan will be administered by the Board of Directors. Participants in the
Bonus Plan must be key executives of the Company or its subsidiaries who are
determined by the Board of Directors to be important to the future success of
the Company. Members of the Board of Directors are not eligible to participate
so long as the Board is administering the Bonus Plan. The plan calls for the
Common Stock to be issued at the market price at date of grant, and the
aggregate number of shares of Common Stock which may be issued under the Bonus
Plan may not exceed 500,000.
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Results of Operations
---------------------
Three months ended March 31, 1995 vs. three months ended April 1, 1994
- ----------------------------------------------------------------------
For the three months ended March 31, 1995, net sales were $3,327,028, an
increase of $2,089,566 or 168.9% over the comparable three months ended April
1, 1994. The primary reasons for this increase are the inclusion of revenues
for the recently acquired eighteen (18) hearing centers from Hearing Health
Services, Inc. on December 30, 1994 plus the incremental revenue effects from
the new and expanded managed care contracts. New advertising programs, the
conclusion of the 1994 restructuring program and continuing expense control
programs helped to generate more revenues in 1995 as compared to 1994.
Cost of products sold for the three months ended March 31, 1995 increased
by $614,835 or 137.6% over the three months ended April 1, 1994. This increase
resulted from the above correlated effect of additional revenues from the
eighteen (18) additional centers purchased on December 30, 1994 from Hearing
Health Services, Inc. The overall cost of products sold percentage of net sales
is lower in 1995 as compared to 1994 mainly due to the Company's ongoing
expense control programs.
Selling, general and administrative expenses are comprised of personnel
costs, advertising and marketing expenses, property and equipment rents, and
depreciation and amortization. The total of these expenses were higher than
last year due again to the newly acquired eighteen (18) centers from Hearing
Health Services, Inc. in December, 1994 as the 1994 results do not include any
of these new centers' related costs.
The Company achieved profitability of $29,364 for the three months ended
March 31, 1995 as compared to a loss of $520,344 for the comparable three
months of 1994. The combination of the new centers, new and expanded managed
care contracts, the traditional strongest quarter of the year, and the cost
control programs implemented in 1994 contributed to the positive results of
1995 over 1994.
Significant Events
------------------
As previously reported, on December 30, 1994, the Company entered into a
purchase agreement with Hearing Health Services, Inc. to acquire certain assets
and assume certain liabilities of eighteen (18) Florida retail hearing aid
centers. The results of these centers were reported for the first time in the
quarter ended March 31, 1995.
On January 4, 1995, the Company received a payment of $500,000 from three
limited partnerships affiliated with Hearing Health Services, Inc. for the
private placement receivable that was recorded on December 30, 1994.
In March, 1995, the Company entered into an agreement for the development
of a computerized system with Alpha Bytes Computer Corporation of Toronto,
Canada for the Company's network of hearing centers at a price of $247,000.
<PAGE> 15
One-third of the total ($82,333) was paid through the issuance of Common Stock
(131,733 shares). The Company has the option to pay for the rest of the system
either in cash or Common Stock.
Likewise during March, 1995, the Company received payments and/or
subscriptions for $340,000 (40%) for a new $850,000 private placement for the
sale of 1,000,000 shares of Common Stock.
Liquidity and Capital Resources
-------------------------------
Historically, the Company's principal sources of funds have been borrowings
from and stock purchases by its stockholders, private and public warrant
offerings, and cash generated from operations. During the three months ended
March 31, 1995, cash flow from operating activities was the result of the
collection of payment for the private placement from the Hearing Health
Services, Inc. partnership group for $500,000. Cash from financing activities
was mainly the proceeds of $340,000 from the new 1995 private placement
offering.
On March 31, 1995, the Company had a working capital deficit of $51,399 as
compared to a working capital deficit of $623,200 for December 30, 1994.
Net cash provided from operating activities was $97,419 for the three
months ended March 31, 1995, as compared to cash used of $946,532 for the three
months ended April 1, 1994. The primary reason for the difference was the
recording of the provision for accrued costs for restructuring and discontinued
operations in 1994 as well as a profit in 1995 as compared to a loss in 1994.
Net cash used in investing activities was $290,275 for the three months
ended March 31, 1995, as compared to net cash provided of $113,280 for the
three months ended April 1, 1994. The difference was primarily due to the 1995
purchase of a computerized system from Alpha Bytes Computer Corporation, Inc.
for $247,000.
Net cash provided by financing activities was $170,043 for the three months
ended March 31, 1995, as compared to $525,806 for the comparable three months
ended April 1, 1994. The difference was attributable to additional funds
raised from a loan of $500,000 from the principal shareholder/officer during
1994.
HEARx believes that with the continued implementation of its cost
reduction and control programs, the further development of its franchise and
institutional sales bases and continued investor participation, the Company can
fund its operating deficit, at its current level, until approximately January
1996. The Company expects to meet its cash needs with the sale of additional
units in the new 1995 private placement and a potential institutional investor
infusion of capital of approximately $2,000,000 to $5,000,000. There can be
no assurance that these anticipated improvements in operations or the
aforementioned funding can be achieved.
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27, Financial Data Schedule (provided for the information
of the Securities and Exchange Commission only)
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HEARx Ltd.
(Registrant)
Date: May 12, 1995 By: /s/ Stephen J. Hansbrough
---------------------------------
Stephen J. Hansbrough
Executive Vice President
Chief Operating Officer
Date: May 12, 1995 By: /s/ Tommy E. Kee
---------------------------------
Tommy E. Kee
Vice President, Controller and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR HEARX LTD. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000821536
<NAME> HEARX LTD.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 306,194
<SECURITIES> 0
<RECEIVABLES> 1,745,137
<ALLOWANCES> (151,495)
<INVENTORY> 301,603
<CURRENT-ASSETS> 2,512,971
<PP&E> 3,035,932
<DEPRECIATION> (1,844,464)
<TOTAL-ASSETS> 4,177,057
<CURRENT-LIABILITIES> 2,564,370
<BONDS> 2,398,472
<COMMON> 4,219,140
0
97,352
<OTHER-SE> (5,266,944)
<TOTAL-LIABILITY-AND-EQUITY> 4,177,057
<SALES> 3,181,304
<TOTAL-REVENUES> 3,327,028
<CGS> 1,061,639
<TOTAL-COSTS> 3,290,961
<OTHER-EXPENSES> (23,476)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,179
<INCOME-PRETAX> 29,364
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,364
<EPS-PRIMARY> $0.00
<EPS-DILUTED> $0.00
</TABLE>
