<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 29, 1996
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 or 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
- -------------------------------------------------------------------------------
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 29, 1996, 65,909,183 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 29,1996 and December 29, 1995 3 - 4
Consolidated Statements of Operations -
Three Months ended March 29, 1996 and
March 31, 1995 5
Consolidated Statements of Cash Flows -
Three Months ended March 29, 1996 and March 31, 1995 6 - 7
Notes to Consolidated Financial Statements 8 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 14
PART II. OTHER INFORMATION:
Item 6. Exhibits and reports on Form 8-K 15
Signatures 15
<PAGE> 3
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 29, December 29,
1996 1995
(unaudited) (audited)
------------ ------------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,404,148 $ 933,539
Accounts and notes receivable, less allowance for doubtful accounts of
$353,834 and $341,234. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,066,243 1,227,993
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,547 395,983
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . 1,121,202 529,418
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,909,140 3,086,933
------------ ------------
Property and equipment:
Equipment, furniture and fixtures. . . . . . . . . . . . . . . . . . . . . . . 2,122,472 2,357,101
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760,997 729,144
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,965,719 1,309,127
------------ ------------
5,849,188 4,395,372
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 1,967,240 1,871,490
------------ ------------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,881,948 2,523,882
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,676,790 839,813
------------ ------------
5,558,738 3,363,695
------------ ------------
$12,467,878 $6,450,628
============ ============
<FN>
(Continued)
See notes to consolidated financial statements
</TABLE>
<PAGE> 4
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 29, December 29,
1996 1995
(unaudited) (audited)
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . $ 969,582 $ 2,030,774
Current portion of obligations under capital leases. . . . . . . . . . . . . . 49,781 56,206
Short-term loan - principal shareholder. . . . . . . . . . . . . . . . . . . . -- 100,000
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,841,397 1,597,714
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678,538 619,418
------------ ------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,539,298 4,404,112
------------ ------------
Long-term debt, net of current portion - other . . . . . . . . . . . . . . . . . 220,038 460,194
Long-term debt, net of current portion - principal shareholder . . . . . . . . . 2,122,673 1,845,000
Obligations under capital leases, net of current portion . . . . . . . . . . . . 3,860 11,106
------------ ------------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,346,571 2,316,300
------------ ------------
(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
1992, Senior B, 22,500 shares; . . . . . . . . . . . . . . . . . . . . . . . -- 22,500
1993, Senior D, 14,926 shares; . . . . . . . . . . . . . . . . . . . . . . . -- 14,926
1993, Senior G, 14,926 shares; . . . . . . . . . . . . . . . . . . . . . . . -- 14,926
1995, Senior E, 6,472 shares;. . . . . . . . . . . . . . . . . . . . . . . . -- 6,472
(Total aggregate amount of liquidation preference for the
above - $5,400,000). . . . . . . . . . . . . . . . . . . . . . . . . . .
------------ ------------
-- 88,824
Series C, 1992, Convertible, 10,000 shares;. . . . . . . . . . . . . . . . . -- 10,000
1994, Convertible, 5,000 shares; . . . . . . . . . . . . . . . . . . . . . . -- 5,000
1996, Senior, 6,000 shares:. . . . . . . . . . . . . . . . . . . . . . . . . 6,000 --
------------ ------------
6,000 103,824
Common stock, $.10 par; authorized 100,000,000 shares, issued: 65,909,183. . . . 6,590,918 4,795,678
Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (625,000) --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,755,841 23,079,016
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,135,626) (28,234,803)
Unamortized deferred compensation. . . . . . . . . . . . . . . . . . . . . . . . (10,124) (13,499)
------------ ------------
Total (capital deficit) stockholders' equity . . . . . . . . . . . . . . . . . . 6,582,009 (269,784)
------------ ------------
$12,467,878 $ 6,450,628
============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 5
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1996
AND MARCH 31, 1995
<CAPTION>
1996 1995
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,718,192 $3,327,028
------------ ------------
Costs and expenses:
Cost of products sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391,646 1,061,639
Center operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,236,956 1,754,660
General and administrative expenses. . . . . . . . . . . . . . . . . . . . . . 787,557 366,940
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 145,347 84,246
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,509 30,179
------------ ------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,619,015 3,297,664
------------ ------------
Profit/(loss) before income taxes. . . . . . . . . . . . . . . . . . . . . . . . 99,177 29,364
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
------------ ------------
Net profit/(loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,177 29,364
============ ============
Net profit/(loss) per Common Share . . . . . . . . . . . . . . . . . . . . . . . $0.00 $0.00
============ ============
Weighted average number of shares of common stock outstanding. . . . . . . . . . 51,093,536 39,003,252
============ ============
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 29, 1996 AND MARCH 31, 1995
Increase (decrease) in cash and cash equivalents
<CAPTION>
1996 1995
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99,177 $ 29,364
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 145,347 84,246
Non-cash expense to advisors/consultants . . . . . . . . . . . . . . . . . . 38,250 43,051
Non-cash expense for customer list . . . . . . . . . . . . . . . . . . . . . 239,070 82,333
Non-cash expense for executive stock bonuses/deferred compensation
stock plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,375 119,076
(Increase) decrease in:
Accounts and notes receivable. . . . . . . . . . . . . . . . . . . . . . . . (838,250) (230,774)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,436 35,961
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . (591,784) (267,752)
Deferred charges and other . . . . . . . . . . . . . . . . . . . . . . . . . (881,360) (22,934)
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,683 277,030
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,120 (216,849)
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . -- 164,667
------------ ------------
Net cash provided (used) in operating activities . . . . . . . . . . . . . . . . (1,404,936) 97,419
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . (1,463,886) (295,983)
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . 4,856 5,708
------------ ------------
Net cash provided (used) by investing activities . . . . . . . . . . . . . . . . (1,459,030) (290,275)
------------ ------------
<FN>
(Continued)
See notes to consolidated financial statements
</TABLE>
<PAGE> 7
<TABLE>
HEARx LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 29, 1996 AND MARCH 31, 1995
Increase (decrease) in cash and cash equivalents
<CAPTION>
1996 1995
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of:
Customer list purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,515 --
Conversion of accrued interest - principal shareholder . . . . . . . . . . . 63,007 --
Conversion of cumulative dividends - principal shareholder . . . . . . . . . 214,666 --
Principal payments:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,515,863) (49,830)
Forgiveness of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . (99,000) (117,550)
Capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . . (13,671) (2,577)
Proceeds from issuance of capital stock, net of offering costs . . . . . . . . 6,471,921 340,000
------------ ------------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . 5,334,575 170,043
------------ ------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . 2,470,609 (22,813)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 933,539 329,007
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $3,404,148 $306,194
============ ============
<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> 8
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 29, 1995. 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. Reclassifications:
Certain amounts in the 1995 financial statements have been reclassified in
order to conform to the 1996 presentation.
Note 3. New Listing:
On March 15, 1996, the Company's Common Stock was listed on the American Stock
Exchange under the symbol of "EAR".
Note 4. Private Placements:
On January 29, 1996, the Company completed a private placement of 6,000 shares,
$1 par, of the 1996 Senior Preferred Stock and 10,909,090 Common Stock purchase
warrants in consideration for $4.9 million of cash and the conversion of a $1.1
million note payable. The warrants are exercisable over five years at a price
of $.55 per share. The 1996 Senior Preferred Stock may be redeemed by the
Company for $6 million at any time. If not redeemed within four years, the
investors will be entitled to exercise, for a one year period, warrants to
purchase an additional 4,000,000 shares of Common Stock at an exercise price of
$.55 per share. Under the terms of the 1996 Senior Preferred Stock, the
investors generally have the right to approve future debt or equity offerings
by the Company. In connection with the private placement, the Company issued
warrants to purchase 2,250,000 shares of Common Stock at a price of $.63 per
share to an investment banker as a placement fee. Additionally, the agreement
provided for the Company to effect a 15 for 1 reverse stock split. The
Board of Directors has since decided that it is not in the best interest of
the shareholders or the Company to proceed with the above stock split at this
time and it is not expected that a reverse stock split will be proposed in the
upcoming June 14, 1996 Annual Stockholders' Meeting.
Note 5. Other Financing:
On March 5, 1996, the Company completed a $2.5 million trade financing
agreement with a vendor pursuant to which the vendor will provide financing for
the purchase of diagnostic equipment to be utilized by the Company's
distribution network. A percentage of all hearing aid purchases by the Company
<PAGE> 9
HEARx LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- -------------------------------------------------------------------------------
from this vendor will be applied to repayment of financed amounts under the
financing agreement.
Note 6. Acquisition and Expansion:
In January, 1996, the Company acquired the customer list and selected assets of
Suffolk County Hearing Aid Center, Inc. in New York for $150,000, 150,000
shares of Common Stock, and a five year note in the amount of $250,000
including interest. The note payable bears interest at 5 1/2 percent and is
payable in five annual installments of $50,000 beginning January 22, 1997.
During the first quarter of 1996, the Company opened 13 in a projected series
of 25-30 new HEARx Centers in the New York, New Jersey and soon to be
Connecticut areas to provide hearing care to members of Oxford Health Plans and
Select Providers, Inc. Management estimates these contracts will generate
$4.25 million in annual revenues in each of the next three years; however, they
can be cancelled with ninety days notice by either party at any time.
Note 7. Long-term Debt:
During December, 1995, two individuals loaned the Company $1,000,000 and
$100,000 represented by short term notes payable. During January, 1996, these
notes payable were converted into part of the 1996 Senior Preferred Stock (see
note 4).
During May, 1995, the Company reached an agreement with Minnesota Mining and
Manufacturing Company ("3M") to convert $808,000 of accounts payable into long-
term debt. The Company paid $308,000 of this debt in January, 1996.
In January, 1996, a payment of $100,000 was made to the principal
stockholder/officer on the total $270,000 advanced by him to the Company during
1995. The remaining $170,000 of the advance plus $63,000 of accrued interest
were converted into a note payable bearing interest at prime plus 3%. Likewise
in January, 1996, cumulative dividends of $214,666 associated with the
conversion of the Series C Preferred Stock were converted into a promissory
note payable to the principal stockholder/officer. In addition, the principal
stockholder/officer has a promissory note of the Company for $1,675,000, which
is subordinated to all other indebtedness of the Company. The interest rate is
prime plus 3%. The combined total of the above notes payable is $2,122,666.
Note 8. Stockholders' Equity:
Conversions of Senior Preferred, Series C Preferred, and 1994 Convertible
Preferred Stock into shares of Common Stock:
- -------------------------------------------------------------------------
Senior Preferred Stock - Each share of Senior Preferred Stock, Series A, B, D,
E and G is convertible at the option of the holder (3M) into 100 shares of
Common Stock and is automatically converted into 100 shares of Common Stock
upon the listing of the Company's Common Stock on the American or New York
Stock Exchanges. As the Company's Common Stock was listed on the American
<PAGE> 10
HEARx LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- -------------------------------------------------------------------------------
Stock Exchange on March 15, 1996, all shares of the Senior Preferred Stock,
Series A, B, D, E and G were automatically converted into 8,882,400 shares of
Common Stock.
Series C Preferred Stock - During January, 1996, the Series C Preferred Stock
was converted by the principal shareholder/officer into 1,040,000 shares of
Common Stock, and the cumulative dividends of $214,666 were converted into a
promissory note (see note 7).
1994 Convertible Preferred Stock - Each share of 1994 Convertible Preferred
Stock is convertible into 1,000 shares of Common Stock. On March 8, 1996, the
holders (Hearing Health Services, Inc. and three limited partnerships
affiliated with Hearing Health Services, Inc.) converted all of the 1994
Convertible Preferred Stock into 5,000,000 shares of Common Stock. Hearing
Health Services, Inc. also exercised warrants to purchase 2,500,000 shares of
Common Stock at a price of $.25 per share on January 29, 1996, in a cashless
exercise resulting in the issuance to Hearing Health Services, Inc. of
2,250,000 shares of Common Stock.
1996 Senior Preferred Stock
- ---------------------------
As mentioned in note 4, the Company completed a private placement of 6,000
shares, $1 par, of the 1996 Senior Preferred Stock in consideration for $4.9
million of cash and the conversion of a $1.1 million note payable. Associated
warrants with this preferred stock are 10,909,090 at an exercise price of $.55
per share. The 1996 Senior Preferred Stock may be redeemed by the Company for
$6 million at any time. If not redeemed within four years, the investors will
be entitled to exercise, for a one year period, warrants to purchase an
additional 4,000,000 shares of Common Stock at an exercise price of $.55 per
share.
Common Stock
- ------------
As already mentioned in note 6, an additional 150,000 shares of Common Stock
were issued during January, 1996 for the purchase of the customer list and
selected assets of Suffolk County Hearing Aid Center, Inc.
Note 9. Stock Plans:
Under the Company's 1987 stock option plan, as amended, the Company's Board of
Directors, or a committee thereof, is authorized to grant stock options to
purchase up to an aggregate of 2,500,000 shares of the Company's Common Stock.
Officers and other key employees of the Company, other than the principal
stockholder and individuals who hold ten percent or more of the Company's
Common Stock, are eligible to receive either incentive or non-incentive stock
options. 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.
<PAGE> 11
HEARx LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
- -------------------------------------------------------------------------------
In June 1995, the Company's stockholders approved the adoption of the HEARx
Ltd. 1995 Flexible Stock Plan ("Flexible Stock Plan"), pursuant to which a
committee of the Board of Directors (whose members shall not receive awards
under the 1995 Flexible Stock Plan or any other discretionary grant plans of
the Company) may make awards to eligible participants in the form of stock
options, stock appreciation rights, restricted stock, performance shares and
other stock-based awards. The number of shares of Common Stock which may be
issued in connection with awards under the 1995 Flexible Stock Plan will not
exceed 2,500,000, plus an automatic annual increase of 10% of the number of
shares subject to the Plan as of the prior year.
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> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
Results of Operations
---------------------
Three months ended March 29, 1996 vs. three months ended March 31, 1995
- -----------------------------------------------------------------------
For the three months ended March 29, 1996, net sales were $4,718,192, an
increase of $1,391,164 or 42% over the comparable three months ended March 31,
1995. The main reasons for this increase are the inclusion of revenues from
the opening of thirteen (13) hearing centers in New York and New Jersey as
well as the opening of three of five proposed new centers in Florida.
Cost of products sold for the three months ended March 29, 1996 increased
by $330,007 or 31% over the three months ended March 31, 1995. This increase
resulted from the correlated effect of additional revenues from the thirteen
new centers that were opened in New York and New Jersey as well as the new
Florida centers; however, the percentage of cost of products sold to net sales
is lower in 1996 (29.5%) than in 1995 (31.9%) due to the Company's ongoing
expense control programs and better terms with the various manufacturers.
Center operating and general and administrative expenses are comprised of
personnel costs, advertising and marketing expenses, property and equipment
rents, and depreciation and amortization. The total of all of these expenses
was higher in 1996 due to the new centers in the Northeast and Florida.
Net profit for the three months ended March 29, 1996 was $99,177 as
compared to a net profit of $29,364 for the comparable three months ended
March 31, 1995, a percentage increase of 238%.
Subsequent Events
-----------------
The Company completed on May 10, 1996 two offerings which will raise a
total of $30 million. Net proceeds from the offerings will be used to fund the
redemption of the 1996 Senior Preferred Stock and the national expansion of the
HEARx Center network. The expansion will be based on requirements of signed
provider and health insurance contracts and should allow the company to expand
its center network to approximately 250 centers over the next several years.
A total of $12.45 million of the proceeds will not be paid to the Company until
the effective date of an S-3 Registration Statement which the Company expects
to file within two weeks covering Common Stock underlying certain convertible
preferred stock sold in the Company's offerings. The conversion price of the
convertible preferred stock is the lesser of $5.00 per share or up to a maximum
of 25% below then current market. In addition, certain investors will receive
upon conversion 5-year Warrants to purchase 3.75 million shares at a price of
$8.00 per share, subject to certain adjustments.
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
<PAGE> 13
offerings, and cash generated from operations. During the three months ended
March 29, 1996, cash flow from operating activities was the result of the
payment of $4,900,000 from the January 29, 1996 private placement (total of
$6,000,000 less $1,100,000 received in 1995).
On March 29, 1996, the Company had working capital of $3,369,842 (working
capital ratio of 1.95) as compared to a working capital deficit of $1,317,179
for December 29, 1995.
Net cash used in operating activities was $1,404,936 for the three months
ended March 29, 1996, as compared to cash provided of $97,419 for the three
months ended March 31, 1995. The primary reason for the difference was the
increase in receivables and deferred charges (customer list acquisition).
Net cash used in investing activities was $1,459,030 for the three months
ended March 29, 1996, as compared to net cash used of $290,275 for the three
months ended March 31, 1995. The difference was primarily due to the increased
development in opening new centers in 1996 as well as the development and
implementation of new computer systems.
Net cash provided by financing activities was $5,334,575 for the three
months ended March 29, 1996, as compared to $170,043 for the comparable three
months ended March 31, 1995. The difference was from the 1996 private
placement of 6,000 shares of 1996 Senior Preferred Stock.
With all proceeds from the recent two private placements, the Company will
meet its cash needs for its existing operations as well as for the planned
expansion. HEARx believes that with the continued implementation of its cost
control programs, the further development and execution of anticipated managed
care contracts, the Company should not have a need to seek other financing in
the near future except for unplanned expansion requirements; however, there can
be no assurance that other unforeseeable events will not occur which will
require the Company to seek additional financing.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits - See Exhibit Index on page 15.
(b) Reports on Form 8-K - None
<PAGE> 14
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 10, 1996 By: /s/ Stephen J. Hansbrough
---------------------------------
Stephen J. Hansbrough
President
Chief Operating Officer
Date: May 10, 1996 By: /s/ Tommy E. Kee
---------------------------------
Tommy E. Kee
Vice President and
Chief Financial Officer
<PAGE> 15
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
3.1 Restated Certificate of Incorporation, as amended (incorporated
by reference to Exhibit 3.1(a) to the Company's Registration
Statement on Form S-18 (Registration No. 33-17041-NY),
Exhibit 3.1(d) to the Post-Effective Amendment No. 1 thereto,
Exhibits 3.1(b) and 3.1(c) to the Company's Current Report on
Form 8-K dated November 8, 1991, Exhibit 3.1(e) to the
Company's Current Report on Form 8-K dated June 2, 1992 and
Exhibits 3.1(f), 3.1(g) and 3.1(h) to the Company's Annual
Report on Form 10-K filed April 12, 1996).
3.2 By-Laws (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-18
(Registration No. 33-17041-NY)).
27 Financial Data Schedule (provided for the information of the
U.S. Securities and Exchange Commission only)
<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.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> MAR-29-1996
<CASH> 3,404,148
<SECURITIES> 0
<RECEIVABLES> 2,420,077
<ALLOWANCES> (353,834)
<INVENTORY> 317,547
<CURRENT-ASSETS> 6,909,140
<PP&E> 5,849,188
<DEPRECIATION> (1,967,240)
<TOTAL-ASSETS> 12,467,878
<CURRENT-LIABILITIES> 3,539,298
<BONDS> 2,346,571
0
6,000
<COMMON> 6,590,918
<OTHER-SE> (14,909)
<TOTAL-LIABILITY-AND-EQUITY> 12,467,878
<SALES> 4,691,517
<TOTAL-REVENUES> 4,718,192
<CGS> 1,391,646
<TOTAL-COSTS> 4,561,506
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,509
<INCOME-PRETAX> 99,177
<INCOME-TAX> 0
<INCOME-CONTINUING> 99,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,177
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
