C. Scott Harrison used to be a combat surgeon in Vietnam. Now he is trying out his trauma skills on a critically ill patient by the name of Kirschner Medical Corp. of Timonium.
As the company's chief executive, Dr. Harrison has tried to administer a healing therapy in the past year by selling off the company's Timonium manufacturing plant and veterinary business, increasing its sales and arranging the company's sale to Henley International Inc. of Houston.
But last week, the orthopedic-products company received another damaging blow when the U.S. Food and Drug Administration unexpectedlyyanked the company's certificate of export, a document that is not required but offers foreign countries an assurance of a product's quality. The FDA would not explain its action.
Dr. Harrison said the short-term impact is meaningless because the withdrawal of the certificate affects less than 5 percent of the company's sales, but analysts worry that Kirschner's four-year financial balancing act remains far from over.
"There are few companies I follow that have been through the meat grinder the way this company has," said Jeffrey Morris, an analyst with Josephthal Lyon and Ross of New York.
Henley International Inc. of Houston, a fast-growing company, said last month that it was willing to pay roughly $37 million for Kirschner in a stock swap, as well as assume Kirschner's $45 million of debt.
But three days after the FDA's action, the deadline for reaching a final sale agreement passed. Kirschner and Henley executives were meeting yesterday to continue negotiations on the sale.
Dr. Harrison said the major holdup to a final agreement is the loss of the company's export certificate but that it was primarily a matter of documentation and not concerns about its products' safety.
Still, without a deal, Kirschner would be "between a rock and a hard place," said John Boettiger, an analyst with Kemper Securities Group of Houston.
Kirschner would be hard-pressed to find the $10 million due to Maryland National Bank in September, and it faces an additional $4.3 million in bank payments in December.
"The failure of the talks is not the end of Kirschner," said Mr. Morris.
Mr. Morris said the company could always go to the market to raise equity to pay off a portion of the debt. He warned, however, that the company's stock would likely sell at "unfavorable levels, unfortunately."
After trading as high as $21.25 a share during last year's fourth quarter, Kirschner closed yesterday at $10 a share.
But others question whether a company whose current liabilities of $56.8 million exceed its current assets by more than $6 million would be able to raise the money in today's market. "If Kirschner could have gone to the market and paid off the debt, it would have," Mr. Boettiger said.
In the company's 1991 annual report, the auditors said the company has borrowed $10 million from its $12 million line of credit. "These factors may raise substantial doubt about the company's ability to continue as a going concern," KPMG Peat Marwick said in the annual report.
But Dr. Harrison continues to be confident.
"We have had numerous discussions [with Maryland National Bank]. They have shown a willingness to be flexible," he said.
If Maryland National calls the loans, Kirschner could be forced to default on the loans, which would end any hope the bank has of getting its money back, he said. On the other hand, as a going business, the company is making its $6 million in interest payments annually as well as small monthly payments on the principal.
Kirschner's problems began when it purchased the Professional Medical Products division of Chick Medical Products in 1988. That division, however, had nagging problems with its surgical lighting products and became a financial drain on its parent. The division was sold at the end of 1990.
In addition, Kirschner is fighting a number of shareholder lawsuits,and it is owed $20 million by the Spanish government for products it purchased.
In the past few years, the debt-ridden company has been able to renegotiate its loans with Maryland National and sell several pieces of its business. Its sales have increased in recent years -- by 12 percent last year, to $71 million, and 15 percent the year before.
And income from continuing operations before extraordinary items rebounded last year to $2.6 million from a loss of $3.5 million in 1990. The company earned $1 million, or 39 cents a share, on revenue of $18.5 million in its first quarter, which ended March 31.
Despite its problems, Henley has good reason to buy the 65-year-old company, analysts said. "It's a well-established orthopedic company with a well-regarded product line," Mr. Boettiger said.
Kirschner also has an international sales force of several hundred people, and the two companies have complementary products. Henley sells surgical kits, and Kirschner sells artificial hips, knees and pins that are used to heal bones. In addition, both companies are of comparable size in terms of sales. Henley recorded sales of $45.3 million last year and earnings of $1.6 million.
"A number of people feel Henley will not walk away from this deal because Henley is stealing this company," Mr. Morris said.