<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 OCTOBER 1, 1999
---------------
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
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HEARX LTD
----------------------------------------------------
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
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DELAWARE 22-2748248
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(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1250 NORTHPOINT PARKWAY, WEST PALM BEACH, FLORIDA 33407
- ------------------------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 478-8770
--------------
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT
INDICATE BY CHECK X 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 OCTOBER 21, 1999 10,999,008 SHARES OF THE REGISTRANT'S COMMON STOCK WERE
OUTSTANDING.
<PAGE> 2
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 3
October 1, 1999 and December 25, 1998
Consolidated Statements of Operations 4
Nine months ended October 1, 1999 and September 25, 1998
Consolidated Statements of Operations 5
Three months ended October 1, 1999 and September 25, 1998
Consolidated Statements of Cash Flows 6
Nine months ended October 1, 1999 and September 25, 1998
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial Condition 9 - 12
and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and reports on Form 8-K 14
Signatures 15
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2
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HEARX LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
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October 1, December 25,
1999 1998
----------- ---------
(unaudited) (audited)
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CURRENT ASSETS:
Cash and cash equivalents $ 2,714,988 $ 2,650,111
Investment securities 2,000,290 7,170,780
Accounts and notes receivable, less allowance for
doubtful accounts of $ 447,139 and $588,509 6,902,644 4,087,912
Inventories 565,851 529,427
Prepaid expenses 307,454 338,868
Other assets 419,891 500,888
------------ ------------
Total current assets 12,911,118 15,277,986
PROPERTY AND EQUIPMENT - NET 8,879,719 7,100,530
INVESTMENT AND ADVANCES IN HEARX WEST LLC - 1,406,900
OTHER 1,761,739 1,422,901
------------ ------------
$ 23,552,576 $ 25,208,317
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 8,504,812 $ 4,877,649
Restructure reserve 374,546 1,450,739
Accrued salaries and other compensation 429,949 695,892
Current maturities of long term debt 241,597 639,664
------------ ------------
Total current liabilities 9,550,904 7,663,944
------------ ------------
LONG TERM DEBT, LESS CURRENT MATURITIES 378,921 123,316
------------ ------------
MINORITY INTEREST (79,536) -
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Non-redeemable preferred stock:
(Aggregate liquidation preference $ 9,850,033 and
$13,460,270) $1 par, 2,000,000 shares authorized; issued and
outstanding:
1998 Convertible 7,315 & 7,500 shares outstanding 7,315 7,500
1997 Convertible 1,692 & 5,209 shares outstanding 1,692 5,209
------------ ------------
Total preferred stock 9,007 12,709
Common stock; $.10 par; 20,000,000 & 130,000,000 shares
authorized; 11,307,718 & 104,023,643 shares issued 1,130,772 10,402,364
Additional paid-in capital 87,242,601 77,531,270
Accumulated deficit (72,905,456) (70,257,968)
Accumulated other comprehensive income (3,052) 58,263
Unamortized deferred compensation (47,266) (75,625)
Treasury stock, at cost - 303,160 and 40,531
common shares (1,724,319) (249,956)
------------ ------------
Total stockholders' equity 13,702,287 17,421,057
------------ ------------
$ 23,552,576 $ 25,208,317
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
3
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HEARX LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED OCTOBER 1, 1999 AND SEPTEMBER 25, 1998
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1999 1998
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(Unaudited) (Unaudited)
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NET REVENUES $ 35,721,997 $ 20,525,107
------------ ------------
COSTS AND EXPENSES:
Cost of products sold 11,176,580 5,913,052
Center operating expenses 19,038,006 14,625,594
General and administrative expenses 5,750,521 4,814,406
Depreciation and amortization 1,780,042 1,698,427
Interest expense 19,019 51,332
------------ ------------
Total costs and expenses 37,764,168 27,102,811
------------ ------------
LOSS BEFORE MINORITY INTEREST (2,042,171) (6,577,704)
MINORITY INTEREST (13,563) -
------------ ------------
NET LOSS (2,055,734) (6,577,704)
DIVIDENDS ON PREFERRED STOCK (591,754) (352,362)
------------ ------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (2,647,488) $ (6,930,066)
============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.25) $ (0.69)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 10,697,459 10,068,891
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
4
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HEARX LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 1, 1999 AND SEPTEMBER 25, 1998
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1999 1998
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(Unaudited) (Unaudited)
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NET REVENUES $ 13,262,242 $6,614,203
------------ ----------
COSTS AND EXPENSES:
Cost of products sold 4,238,203 1,919,315
Center operating expenses 6,606,358 5,091,189
General and administrative expenses 1,981,108 1,430,667
Depreciation and amortization 594,714 576,053
Interest expense 6,246 14,616
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Total costs and expenses 13,426,629 9,031,840
---------- ------------
LOSS BEFORE MINORITY INTEREST (164,387) (2,417,637)
MINORITY INTEREST (211,115) -
---------- ------------
NET LOSS (375,502) (2,417,637)
DIVIDENDS ON PREFERRED STOCK (165,724) (149,709)
---------- -------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (541,226) $ (2,567,346)
=========== =============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $(0.05) $ (0.25)
=========== =============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 10,953,351 10,090,686
=========== =============
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE> 6
HEARX LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED OCTOBER 1, 1999 AND SEPTEMBER 25, 1998
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1999 1998
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(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,055,735) $ (6,577,704)
Adjustments to reconcile net loss to net cash
Used by operating activities:
Depreciation and amortization 1,780,042 1,696,880
Write down of property and equipment 69,327 -
Provision for doubtful accounts 422,500 290,967
Loss on disposition of property 14,925 60,268
Fixed asset additions related to consolidation (2,165,551) -
Elimination of sub. Invest. related to consolidation 1,406,900 -
(Increase) decrease in:
Accounts and notes receivable (3,237,232) (1,073,678)
Inventories (36,424) 9,693
Prepaid expenses 31,415 107,867
Other current assets and charges (306,614) (1,063,821)
Increase (decrease) in:
Accounts payable 3,424,954 683,350
Accrued expenses (1,139,927) (258,058)
------------ ------------
Net cash used in operating activities (1,791,420) (6,124,236)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,378,478) (854,703)
Proceeds from sale of property and equipment - 48,310
Purchase of investments (2,750,000) (13,800,000)
Proceeds from sale of mature investments 7,859,174 22,061,757
------------ ------------
Net cash provided by investing activities 3,730,696 7,264,619
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 357,822 -
Principle payments:
Short-term debt (472,989) (218,220)
Long-term debt (27,295) (46,155)
Minority interest (101,856) -
Acquisition of treasury stock (1,474,363) -
Accrued dividends (591,754) (352,362)
Proceeds from the issuance of stock 436,037 7,295,176
------------ ------------
Net cash (used) provided by financing activities (1,874,398) 6,678,442
------------ ------------
Net increase in cash and cash equivalents 64,878 7,818,825
------------ ------------
Cash and cash equivalents at beginning of period 2,650,110 3,644,838
------------ ------------
Cash and cash equivalents at end of period $ 2,714,988 $ 11,463,663
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
6
<PAGE> 7
HEARX LTD.
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 25, 1998. 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain amounts in the 1998 consolidated financial statements have been
reclassified in order to conform to the 1999 presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of HEARx Ltd.
and HEARx West LLC, a joint venture between HEARx Ltd. and the Permanente
Federation. All intercompany transactions and accounts have been
eliminated in the consolidation. Minority Interest represents the
Permanente Federation's capital contribution plus their share of the
cumulative earnings since the formation of the joint venture.
2. STOCKHOLDERS' EQUITY
Reverse Stock Split:
On June 30, 1999 the Company effectuated a one for ten reverse common
stock split. The reverse stock split and a reduction in the authorized
shares of common stock to twenty million was approved at the June 7, 1999
Annual Meeting of Shareholders. Each shareholder of ten shares of common
stock on June 30, 1999 was entitled to one share of common stock in
connection with the reverse split. A cash payment was paid in lieu of
fractional shares issued.
In accordance with FASB 128, Earnings Per Share, the Company has
retroactively adjusted its earnings per share computation for all periods
presented to reflect the change in capital structure.
Conversion of 1997 Preferred Stock into shares of Common Stock
During the nine months ended October 1, 1999, 3,517 shares of the 1997
Convertible Preferred Stock were converted into -859,285 shares of Common
Stock.
Conversion of 1998 Preferred Stock into shares of Common Stock
During the nine months ended October 1, 1999, 185 shares of the 1998
Convertible Preferred Stock were converted into 44,712 shares of Common
Stock.
Common Stock
During the nine months ended October 1, 1999, no warrants were exercised.
Employee stock options were exercised resulting in the issuance of 13,600
shares of common stock.
7
<PAGE> 8
HEARX LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
("SFAS 133"). The Company is required to adopt SFAS 133 for the year
ending December 29, 2000. SFAS 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because the Company
currently holds no derivative financial instruments and does not
currently engage in hedging activities, adoption of SFAS 133 is expected
to have no material impact on the Company's financial condition or
results of operations.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
GENERAL
The Company's strategy for continuing and accelerating center sales
growth and market penetration includes both positioning the Company as
the leading provider of hearing care to the managed care marketplace, and
aggressively advertising to the non-insured self-pay market.
To the extent the Company is successful in contracting with the providers
of Medicare managed care for the provision of hearing care goods and
services, the Company can enjoy the benefits of the continuing shift of
Medicare patients to managed care. HEARx and HEARx West combined
currently receive a per-member-per-month fee for more than 1.3 million
managed care members. In total, HEARx has over 170 contracts for hearing
care with various healthcare providers. Management continues to observe,
however, that a number of managed care organizations are experiencing
significant difficulties, and HEARx has not experienced the growth it
expected from this market. In part as a result of this, the Company has
increased its attention to the self-pay market, focusing an aggressive
advertising and marketing program on the uninsured patient. The Company
intends to increase its sales to these patients, while creating greater
awareness of the Company by the managed care patients covered by
contracts with HEARx. A number of managed care organizations have
announced that they are withdrawing from selected geographic areas, some
of which include HEARx markets. In order to reduce losses in response to
the withdrawal of certain managed care companies from the Northeast
region, the Company closed 12 of its most severely impacted centers in
this region in January 1999. A restructure reserve of $1,450,739 was
established at the end of fiscal 1998 to cover the costs of closing the
centers, including lease termination, employee severance and other costs.
The Company believes the remaining reserve of $374,546 at October 1, 1999
is adequate to cover remaining costs.
HEARx intends, as its ultimate goal, to establish a nationwide network of
hearing care centers, located in the metropolitan areas or regions with
concentrations of elderly consumers who are more likely to need the
Company's products or services. The Company is currently expanding its
hearing care center network through a joint venture ("HEARx West") with
the Permanente Federation LLC. The joint venture agreement provides for a
50/50 ownership by the Company and members of the Permanente Federation,
with the centers bearing the HEARx name. At the end of the third quarter
of 1999, HEARx operated a total of 78 centers. Those include 33 centers
in Florida, 13 in New York, 15 in New Jersey and the 17 HEARx West
centers in California.
RESULTS OF OPERATIONS
For the three months ended October 1, 1999 compared to the three months
ended September 25, 1998
Net revenues increased $6,648,039, or 101%, to $13,262,242 in the third
quarter of 1999 from $6,614,203 in the comparable quarter of 1998. The
increase in net revenues resulted from the inclusion of HEARx West
revenues and an increase in the Company's non-insured "self-pay" and
managed care business arising from the Company's aggressive advertising
campaign. . HEARx Ltd. recorded net revenues for the quarter of
$8,848,775 from 61 centers for the quarter, up 34%, from $6,614,203 from
75 centers for the comparable quarter of 1998.
The consolidated net loss before minority interest was $164,387 for the
third quarter of 1999 down from $2,417,637 in the comparable quarter of
1998. The HEARx West joint venture generated net income of $422,230 for
the third quarter of 1999, resulting in minority interest for HEARx Ltd.
of $211,115.
9
<PAGE> 10
The consolidated loss before preferred dividends for the third quarter of
1999, (which includes earnings from the joint venture HEARx West)
decreased 84% from $2,417,637 in the third quarter of 1998 to $375,502 in
this quarter.
Cost of products sold increased $2,318,888, or 121%, to $4,238,203 in the
third quarter of 1999 from $1,919,315 in the comparable quarter of 1998.
Approximately $1.6 million of the increase is a direct result of the
inclusion of cost of products sold for HEARx West. The remainder of the
increase is attributable to the increase in sales from existing centers.
The cost of products sold as a percent of net revenues, which was 32% and
29 % for the third quarter of 1999 and 1998, respectively, fluctuates
from period to period depending upon the sales mix and sales promotions.
The results of the third quarter were consistent with management's
expectations.
Center operating expenses increased $1,515,169, or 30%, to $6,606,358 in
the third quarter of 1999 from $5,091,189 in the comparable quarter of
1998. Approximately $ 1.8 million of the increase is attributable to the
center operating expenses of HEARx West. Center operating expenses as a
percent of revenue decreased in the third quarter of 1999 to 50% from 77%
in the third quarter of 1998, which is attributable to higher sales.
Consolidated general and administrative expenses increased $550,441 to
$1,981,108 in the third quarter of 1999 from $1,430,667 in the comparable
quarter of 1998. This increase is primarily the result of the inclusion
of HEARx West general and administrative expenses. Consolidated general
and administrative expenses as a percent of net revenue decreased to 15%
in 1999 from 22% in the comparable period of 1998.
At the center level, the Company continues to be profitable in Florida
and is profitable in California at the HEARx West centers. Florida sales
for the quarter ended October 1, 1999 were up approximately 26%, from the
comparable quarter in 1998. In the Northeast market, centers have yet to
generate enough revenue to reach profitability, although revenues were up
87% over the comparable quarter of 1998 with 12 fewer centers.
Depreciation and amortization expense increased $18,661, or 3%, to
$594,714 in the third quarter of 1999 from $576,053 in the comparable
quarter of 1998. Depreciation and amortization for HEARx Ltd., before
consolidation, decreased seventeen percent, or $98,122. This decrease is
due primarily to the closing of twelve centers in the Northeast.
For the nine months ended October 1, 1999 compared to nine months ended
September 25, 1998
Net revenues increased $15,196,890, or 74%, to $35,721,997 in the first
nine months of 1999 up from $20,525,107 in the comparable period of 1998.
The increase in net revenues resulted from the inclusion of HEARx West
revenues and an increase in the Company's non-insured "self-pay" and
managed care business arising from the Company's aggressive advertising
campaign. HEARx Ltd. recorded net revenues of $26,565,564 from 61
centers for the first nine months of 1999, up 29%, from $20,525,107 from
75 centers for the comparable period of 1998.
The consolidated net loss before minority interest was $2,042,171 for the
first nine months of 1999 down from $6,577,704 for the comparable period
of 1998. The HEARx West joint venture generated net income of $27,126 for
the first nine months of 1999, resulting in minority interest income of
$13,563.
The consolidated loss before preferred dividends for the first nine
months of 1999, including income from the joint venture HEARx West,
decreased 69% from $6,577,704 in the first nine months of 1998 to
$2,055,734 for the 1999 period.
10
<PAGE> 11
Cost of products sold increased $5,263,528, or 89%, to $11,176,580 in the
first nine months of 1999 from $5,913,052 in the comparable period of
1998.Approximately $3.4 million of the increase is a direct result of the
inclusion of cost of products sold for HEARx West.The remainder of the
increase is attributable to the increase in sales from existing
centers.The cost of products sold as a percent of net revenues, which was
31% and 29 % for the first nine months of 1999 and 1998, respectively,
fluctuates from period to period depending upon the sales mix and sales
promotions. The results of the first nine months of 1999 were consistent
with management's expectations.
Center operating expenses increased $4,412,412, or 30%, to $19,038,006 in
the first nine months of 1999 from $14,625,594 in the comparable period
of 1998. Approximately $4 million of the increase is attributable to the
center operating expenses of HEARx West. Consolidated center operating
expenses as a percent of revenue decreased in the first nine months of
1999 to 53% from 71% in the comparable period of 1998, which is
attributable to higher sales.
Consolidated general and administrative expenses increased $936,115 to
$5,750,521 in the first nine months of 1999 from $4,814,406 in the
comparable period of 1998. This increase is primarily the result of the
inclusion of HEARx West general and administrative expenses. Consolidated
general and administrative expenses as a percent of net revenue decreased
to 16%in 1999 from 23% in the comparable period of 1998.
Depreciation and amortization expense increased $81,615, or 5%, to
$1,780,042 in the first nine months of 1999 from $1,698,427 in the
comparable period of 1998. Depreciation and amortization for HEARx Ltd.,
before consolidation, decreased fourteen percent, or $230,709. This
decrease is due primarily to the closing of twelve centers in the
Northeast.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased $4,253,828 to $3,360,214 as of October 1, 1999
from $7,614,042 as of December 25, 1998. This decrease is primarily the
result of operating losses and the share repurchase program. The Company
believes that its current working capital and revenues from operations
are sufficient to support the Company's foreseeable capital requirements
and operating needs well into 2000 in accordance with its strategic plan,
although there can be no assurance that other cash needs will not arise.
The Company's strategic plan includes a commitment to loan up to $5
million to HEARx West.As of October 1, 1999, the Company had provided
$3.8 million in loans and advances to HEARx West under this agreement.
During the remainder of 1999, the Company may lend or advance additional
funds to the joint venture under the agreement. During the remainder of
1999 the Company expects to receive approximately $600,000 in cash from
the joint venture for quarterly management fees and interest payments.
Net cash used by operating activities decreased from $6,124,236 for the
first nine months of 1998, to $1,791,422 for the first nine months of
1999.The decrease in cash used by operating activities was primarily the
result of the reduction of operating losses and the elimination of
intercompany transactions between HEARx Ltd. and HEARx West.
Net cash provided by investing activities decreased from $7,264,619 for
the first nine months of 1998, to $3,370,696 for the first nine months of
1999.Funds from the sales of investments decreased $14,202,583 from
$22,061,757, for the first nine months of 1998, to $7,859,174 for the
first nine months of 1999.In the first nine months of 1998, $13,800,000
was reinvested in securities and $2,750,000 reinvested in the first nine
months of 1999.
Cash from financing activities decreased from cash being provided from
financing activities of $6,678,442 in the first nine months of 1998 to
cash being used of $1,874,398 in the first nine months of 1999.This
decrease was primarily the result of funds in the amount of $7,492,500
11
<PAGE> 12
from a preferred stock offering being included in the first nine months
of 1998.As of October 1, 1999 funds in the amount of $1,474,363 has been
used to repurchase the Company's Common Stock.
YEAR 2000
The Company has conducted a comprehensive review of its computer systems
to identify any system that could be affected by the "Year 2000"
issue.This review was completed by the Company's Information Technology
department. The costs associated with this process related primarily to
salaries and were expensed as incurred.The Year 2000 problem is the
result of computer programs being written using two digits rather than
four to define the applicable year.Any of the Company's programs that
have time sensitive software may recognize a date using "00" as the year
1900 rather than 2000.This could result in a system malfunction or
miscalculation.Management believes the Year 2000 problem will not pose
significant operational problems for the Company. The Company's computer
operational programs have been written within the past three years and
use four digits to define the applicable year. The Company has sent
requests for confirmations to outside vendors and principal customers to
ensure their programs are Year 2000 compatible.A majority of the
confirmations have been received and favorably evaluated as to Year 2000
issues. However, there can be no guarantee that the systems of other
companies will be converted timely, or that a supplier will convert. If
these entities are not timely with their conversions, the results could
have a material adverse effect on the Company. A plan has been formulated
to address these issues and testing has been completed.The Company
believes any future costs associated with Year 2000 compliance by the
Company will be immaterial. The Company's worst case scenario would be
that some of our suppliers would be unable to supply products timely and
the Company would have to use alternate vendors.
Except for historical information provided in this discussion and
analysis, the discussion includes forward looking statements, including
those concerning the shift of patients from Medicare to managed care and
the effect thereof on the Company; the intentions of the Company
concerning the uninsured, "self-pay" patient; the Company's goals of
establishing a nationwide center network; the adequacy of remaining
reserves for the center closings; current working capital and revenues
from operations being sufficient to support the Company's capital needs;
loans and advances to and receipts from the HEARx West joint venture in
1999; and the year 2000 problem.Such statements involve certain risks and
uncertainties that could cause actual results to differ materially from
those in the forward-looking statements.Potential risks and uncertainties
include industry and market conditions, especially those affecting
managed health care; the accuracy of the Company's assumptions concerning
reserves; unforeseen capital requirements; trends in market sales, and
the success of the joint venture with The Permanente Federation, as well
as those risks associated with the Company's business described in the
Company's filings with the Securities and Exchange Commission, including
the Form S-3 resale registration statement dated September 29, 1998.
12
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended October 1, 1999, 1,406 shares of the 1997
Convertible Preferred Stock plus accrued dividends of $195,633 and 185
shares of the 1998 Convertible Preferred Stock plus accrued dividend of
$16,156 were converted into 384,749 and 44,712 shares, respectively, of
the Company's Common Stock. The 1997 and 1998 Convertible Preferred Stock
was issued to certain "accredited investors" pursuant to Rule 506 of
Regulation D, and the shares issued upon conversion thereof were also
issued pursuant to Rule 506 Regulation D.
13
<PAGE> 14
Item 6.Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits:
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3.1(1) Restated Certificate of Incorporation of HEARx Ltd.,
including certain certificates of designations,
preferences and rights of certain preferred stock of the
Company. [3]
3.2(2) Amendment to Restated Certificate of Incorporation.
[3.1A]
3.3(3) Certificate of Designations, Preferences and Rights of
the Company's 1997 Convertible Preferred Stock. [3]
3.4(5) Certificate of Designations, Preferences and Rights of
the Company's 1998 Convertible Preferred Stock. [3]
3.5(6) Amendment to Restated Certificate of Incorporation
including one for ten reverse stock split and reduction
of authorized shares. [3.5]
3.6(4) By-Laws of HEARx Ltd. [3.2]
27 Financial Data Schedule (provided for information of the
Securities and Exchange Commission only.)
- ---------------
(1) Filed as an exhibit to the Company's Current Report on
Form 8-K, filed May 17, 1996, as the exhibit number
indicated in brackets, and incorporated herein by
reference.
(2) Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended June 28,1996, as the
exhibit number indicated in brackets, and incorporated
herein by reference.
(3) Filed as an exhibit to the Company's Current Report on
Form 8-K, filed March 26, 1997, as the exhibit number
indicated in brackets, and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's Registration
Statement on Form S-18 (Registration No. 33-17041-NY) as
the exhibit number indicated in brackets, and
incorporated herein by reference.
(5) Filed as an exhibit to the Company's Current Report on
Form 8-K, filed August 27, 1998, as the exhibit number
indicated in brackets, and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended July 2, 1999, as the exhibit
number indicated in brackets, and incorporated herein by
reference.
</TABLE>
(b) Reports on Form 8-K:
None
14
<PAGE> 15
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:November 8, 1999 By: s/Stephen J. Hansbrough
-----------------------
Stephen J. Hansbrough
President and
Chief Operating Officer
Date:November 8, 1999 By: s/James W. Peklenk
------------------
James W. Peklenk
Vice President and
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from financial
statements of HEARx Ltd. and is qualified in its entirely by references to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> OCT-01-1999
<CASH> 2,714,988
<SECURITIES> 2,000,290
<RECEIVABLES> 7,350,783
<ALLOWANCES> (447,139)
<INVENTORY> 3,054,935
<CURRENT-ASSETS> 12,911,118
<PP&E> 16,599,915
<DEPRECIATION> (7,720,197)
<TOTAL-ASSETS> 23,552,576
<CURRENT-LIABILITIES> 9,550,904
<BONDS> 378,921
0
9,007
<COMMON> 1,130,772
<OTHER-SE> 12,625,508
<TOTAL-LIABILITY-AND-EQUITY> 23,552,576
<SALES> 35,721,997
<TOTAL-REVENUES> 35,721,997
<CGS> 11,176,580
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,568,569
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,019
<INCOME-PRETAX> (2,042,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,042,171)
<DISCONTINUED> 0
<EXTRAORDINARY> (591,754)
<CHANGES> 0
<NET-INCOME> (2,647,488)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
