UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 28, 2008
 OR
 o
    
    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 001-11655
 HearUSA, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    22-2748248(State of Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)1250 Northpoint Parkway, West Palm Beach, Florida
    
    33407(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants
Telephone Number, Including Area Code (561) 478-8770
 Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
 Indicate by check √ 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 þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
(Do not check if a smaller reporting company)
Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act). Yes o No þ
 On July 17, 2008, 37,918,254 shares of the Registrants Common Stock and 506,661 exchangeable
shares of HEARx Canada, Inc. were outstanding.




---



##### 



INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets
June 28, 2008 and December 29, 2007
    
    
    3Consolidated Statements of Operations
Six months ended June 28, 2008 and June 30, 2007
    
    
    4Consolidated Statements of Operations
Three months ended June 28, 2008 and June 30, 2007
    
    
    5Consolidated Statements of Cash Flows
Six months ended June 28, 2008 and June 30, 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    37Item 6.
    
    Exhibits
    
    
    38Signatures
    
    
    39




---



##### 



Part I  Financial Information
 Item 1. Financial Statements
 HearUSA, Inc.
Consolidated Balance Sheets
(unaudited)
 June 28,
    
    
    December 29,2008
    
    
    2007(Dollars in thousands)ASSETS (Note 3)Current assetsCash and cash equivalents
    
    $
    3,494
    
    
    $
    3,369Accounts and notes receivable, less allowance for
doubtful accounts of $540,000 and $498,000
    
    
    9,090
    
    
    
    8,825Inventories
    
    
    2,506
    
    
    
    2,441Prepaid expenses and other
    
    
    1,389
    
    
    
    1,283Deferred tax asset
    
    
    62
    
    
    
    62Total current assets
    
    
    16,541
    
    
    
    15,980Property and equipment, net (Note 2)
    
    
    4,497
    
    
    
    4,356Goodwill (Note 2)
    
    
    66,952
    
    
    
    63,134Intangible assets, net (Note 2)
    
    
    16,200
    
    
    
    16,165Deposits and other
    
    
    709
    
    
    
    691Restricted cash and cash equivalents
    
    
    216
    
    
    
    216Total Assets
    
    $
    105,115
    
    
    $
    100,542LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    12,740
    
    
    $
    12,467Accrued expenses
    
    
    2,760
    
    
    
    2,523Accrued salaries and other compensation
    
    
    4,010
    
    
    
    3,521Current maturities of long-term debt
    
    
    13,250
    
    
    
    10,746Current maturities of subordinated notes, net of
debt discount of $7,000 and $60,000
    
    
    667
    
    
    
    1,480Dividends payable
    
    
    34
    
    
    
    34Minority interest in net income of consolidated joint venture
    
    
    1,154
    
    
    
    1,221Total current liabilities
    
    
    34,615
    
    
    
    31,992Long-term debt (Notes 3 and 6)
    
    
    37,949
    
    
    
    36,499Deferred income taxes
    
    
    6,976
    
    
    
    6,462Total long-term liabilities
    
    
    44,925
    
    
    
    42,961Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity (Note 7)Preferred stock (aggregate liquidation preference $2,330,000, $1 par,
7,500,000 shares authorized)Series H Junior Participating (none outstanding)
    
    
    
    
    
    
    Series J (233 shares outstanding)
    
    
    
    
    
    
    Total preferred stock
    
    
    
    
    
    
    Common stock: $0.10 par; 75,000,000 shares authorized
38,424,915 and 38,325,414 shares issued
    
    
    3,842
    
    
    
    3,833Stock subscription
    
    
    
    
    
    
    (412
    )Additional paid-in capital
    
    
    133,400
    
    
    
    133,261Accumulated deficit
    
    
    (113,514
    )
    
    
    (113,076
    )Accumulated other comprehensive income
    
    
    4,332
    
    
    
    4,468Treasury stock, at cost: 523,662 common shares
    
    
    (2,485
    )
    
    
    (2,485
    )Total Stockholders Equity
    
    
    25,575
    
    
    
    25,589Total Liabilities and Stockholders Equity
    
    $
    105,115
    
    
    $
    100,542
 See accompanying notes to consolidated financial statements
 3




---



##### 



HearUSA, Inc
Consolidated Statements of Operations
Six Months Ended June 28, 2008 and June 30, 2007
(unaudited)
 June 28,
    
    
    June 30,2008
    
    
    2007(Dollars in thousands,except per share amounts)Net revenuesHearing aids and other products
    
    $
    54,902
    
    
    $
    45,107Services
    
    
    3,913
    
    
    
    3,367Total net revenues
    
    
    58,815
    
    
    
    48,474Operating costs and expensesHearing aids and other products (Note 3)
    
    
    16,096
    
    
    
    11,789Services
    
    
    1,154
    
    
    
    1,032Total cost of products sold and services
    
    
    17,250
    
    
    
    12,821Center operating expenses
    
    
    28,572
    
    
    
    24,742General and administrative expenses (Notes 1 and 7)
    
    
    8,391
    
    
    
    7,425Depreciation and amortization
    
    
    1,288
    
    
    
    1,025Total operating costs and expenses
    
    
    55,501
    
    
    
    46,013Income from operations
    
    
    3,314
    
    
    
    2,461Non-operating income (expense):Interest income
    
    
    22
    
    
    
    84Interest expense (Notes 2, 3, 4 and 5)
    
    
    (2,494
    )
    
    
    (5,377
    )Income (loss) from continuing operations before income tax expense and minority
interest in income of consolidated joint venture
    
    
    842
    
    
    
    (2,832
    )Income tax expense
    
    
    (519
    )
    
    
    (352
    )Minority interest in income of consolidated joint venture
    
    
    (692
    )
    
    
    (683
    )Net loss
    
    
    (369
    )
    
    
    (3,867
    )Dividends on preferred stock
    
    
    (69
    )
    
    
    (70
    )Net loss applicable to common stockholders
    
    $
    (438
    )
    
    $
    (3,937
    )Net loss applicable to common stockholders per common share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.11
    )Weighted average number of shares of common stock outstanding  basic and diluted
    
    
    38,547
    
    
    
    34,815
 See accompanying notes to consolidated financial statements
 4




---



##### 



HearUSA, Inc.
Consolidated Statements of Operations
Three Months Ended June 28, 2008 and June 30, 2007
(unaudited)
 June 28,
    
    
    June 30,2008
    
    
    2007(Dollars in thousands,except per share amounts)Net revenuesHearing aids and other products
    
    $
    28,220
    
    
    $
    23,166Services
    
    
    1,905
    
    
    
    1,754Total net revenues
    
    
    30,125
    
    
    
    24,920Operating costs and expensesHearing aids and other products (Note 3)
    
    
    8,507
    
    
    
    6,062Services
    
    
    609
    
    
    
    556Total cost of products sold and services
    
    
    9,116
    
    
    
    6,618Center operating expenses
    
    
    14,549
    
    
    
    13,143General and administrative expenses (Notes 1 and 7)
    
    
    3,631
    
    
    
    3,813Depreciation and amortization
    
    
    626
    
    
    
    536Total operating costs and expenses
    
    
    27,922
    
    
    
    24,110Income from operations
    
    
    2,203
    
    
    
    810Non-operating income (expense):Interest income
    
    
    6
    
    
    
    37Interest expense (Notes 2, 3, 4 and 5)
    
    
    (1,254
    )
    
    
    (3,697
    )Income (loss) from continuing operations before income tax expense and
minority interest in income of consolidated joint venture
    
    
    955
    
    
    
    (2,850
    )Income tax expense
    
    
    (319
    )
    
    
    (206
    )Minority interest in income of consolidated joint venture
    
    
    (356
    )
    
    
    (259
    )Net income (loss)
    
    
    280
    
    
    
    (3,315
    )Dividends on preferred stock
    
    
    (35
    )
    
    
    (36
    )Net income (loss) applicable to common stockholders
    
    $
    245
    
    
    $
    (3,351
    )Net income (loss) applicable to common stockholders per common share  basic
    
    $
    0.01
    
    
    $
    (0.09
    )Net income (loss) applicable to common stockholders per common share diluted
    
    $
    0.01
    
    
    $
    (0.09
    )Weighted average number of shares of common stock outstanding  basic
    
    
    38,562
    
    
    
    37,358Weighted average number of shares of common stock outstanding diluted
    
    
    46,042
    
    
    
    37,358
 See accompanying notes to consolidated financial statements
 5




---



##### 



HearUSA, Inc.
Consolidated Statements of Cash Flows
Six Months Ended June 28, 2008 and June 30, 2007
(unaudited)
 June 28,
    
    
    June 30,2008
    
    
    2007(Dollars in thousands)Cash flows from operating activitiesNet loss
    
    $
    (369
    )
    
    $
    (3,867
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Debt discount amortization
    
    
    177
    
    
    
    1,783Interest on reduction of warrant exercise price
    
    
    
    
    
    
    1,371Depreciation and amortization
    
    
    1,288
    
    
    
    1,025Employee and director stock-based compensation
    
    
    384
    
    
    
    278Provision for doubtful accounts
    
    
    271
    
    
    
    205Minority interest in income of Joint Venture
    
    
    692
    
    
    
    683Deferred income tax expense
    
    
    519
    
    
    
    352Interest on discounted notes payable
    
    
    263
    
    
    
    Consulting stock-based compensation
    
    
    33
    
    
    
    115Loss on disposition of property and equipment
    
    
    63
    
    
    
    Principal payments on long-term debt made through rebate credits
    
    
    (1,976
    )
    
    
    (2,343
    )Other
    
    
    (32
    )
    
    
    (5
    )(Increase) decrease in:Accounts and notes receivable
    
    
    (572
    )
    
    
    (51
    )Inventories
    
    
    (43
    )
    
    
    (78
    )Prepaid expenses and other
    
    
    (189
    )
    
    
    (361
    )Increase in:Accounts payable and accrued expenses
    
    
    3,325
    
    
    
    (866
    )Accrued salaries and other compensation
    
    
    491
    
    
    
    89Net cash provided by (used in) operating activities
    
    
    4,325
    
    
    
    (1,670
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (807
    )
    
    
    (154
    )Business acquisitions
    
    
    (2,745
    )
    
    
    (2,392
    )Net cash used in investing activities
    
    
    (3,552
    )
    
    
    (2,546
    )Cash flows from financing activitiesProceeds from issuance of long-term debt
    
    
    3,311
    
    
    
    7,231Principal payments on long-term debt
    
    
    (2,406
    )
    
    
    (1,629
    )Principal payments on convertible subordinated notes
    
    
    
    
    
    
    (784
    )Principal payments on subordinated notes
    
    
    (880
    )
    
    
    (880
    )Proceeds from the exercise of warrants
    
    
    
    
    
    
    1,734Proceeds from the exercise of employee options
    
    
    146
    
    
    
    17Dividends paid on preferred stock
    
    
    (69
    )
    
    
    (70
    )Distributions paid to minority interest
    
    
    (759
    )
    
    
    (579
    )Net cash provided by (used in) financing activities
    
    
    (657
    )
    
    
    5,040Effects of exchange rate changes on cash
    
    
    9
    
    
    
    60Net increase in cash and cash equivalents
    
    
    125
    
    
    
    884Cash and cash equivalents at the beginning of period
    
    
    3,369
    
    
    
    2,326Cash and cash equivalents at the end of period
    
    $
    3,494
    
    
    $
    3,210Supplemental disclosure of cash flows information:Cash paid for interest
    
    $
    431
    
    
    $
    853Supplemental schedule of non-cash investing and financing activities:Principal payments on long-term debt made through rebate credits
    
    $
    (1,976
    )
    
    $
    (2,343
    )Issuance of notes payable in exchange for business acquisitions
    
    $
    2,328
    
    
    $
    2,280Issuance of capital lease in exchange for property and equipment
    
    $
    22
    
    
    $
    328Purchase of equipment with volume discount credit
    
    $
    32
    
    
    $
    Conversion of accounts payable to notes payable
    
    $
    2,843
    
    
    $
    
 See accompanying notes to consolidated financial statements
 6




---



##### 



1. Description of the Company and Summary of Significant Accounting Policies
 The Company
  Basis of Consolidation
  Net income (loss) applicable to common stockholders per common share
   7




---



##### 



Comprehensive income (loss)
  Six Months Ended
    
    
    Three Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,Dollars in thousands
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss) for the period
    
    $
    (369
    )
    
    $
    (3,867
    )
    
    $
    280
    
    
    $
    (3,315
    )Foreign currency translation adjustments
    
    
    (136
    )
    
    
    1,097
    
    
    
    (125
    )
    
    
    981Comprehensive income (loss) for the period
    
    $
    (505
    )
    
    $
    (2,770
    )
    
    $
    155
    
    
    $
    (2,334
    )
 2. Business Acquisitions
    Six Months Ended
    
    Three Months EndedDollars in thousands, except per share amounts
    
    June 28, 2008
    
    June 28, 2008Total revenue
    
    $
    60,501
    
    
    $
    30,781Net income (loss) applicable to common stockholders
    
    $
    (299
    )
    
    $
    289Net income (loss) applicable to common stockholders per share  basic
    
    $
    (0.01
    )
    
    $
    0.01Net income (loss ) applicable to common stockholders per share diluted
    
    $
    (0.01
    )
    
    $
    0.01
 8




---



##### 



3. Long-term Debt (Notes 4 and 5)
  June 28,
    
    
    December 29,Dollars in thousands
    
    2008
    
    
    2007Notes payable to SiemensTranche B
    
    $
    5,307
    
    
    $
    5,403Tranche C
    
    
    23,738
    
    
    
    23,670Tranche D
    
    
    9,191
    
    
    
    7,895Tranche E
    
    
    2,907
    
    
    
    Total notes payable to Siemens
    
    
    41,143
    
    
    
    36,968Notes payable from business acquisitions and other
    
    
    10,056
    
    
    
    10,27751,199
    
    
    
    47,245Less current maturities
    
    
    13,250
    
    
    
    10,746$
    37,949
    
    
    $
    36,499
   2009
    
    $
    13,2502010
    
    
    5,6062011
    
    
    4,0222012
    
    
    3,1362013
    
    
    25,185
 Notes payable to Siemens
    9




---



##### 



Rebate credits on product sales
     Six Months Ended
    
    
    Three Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,Dollars in thousands
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Portion applied against quarterly principal payments
    
    $
    1,976
    
    
    $
    2,343
    
    
    $
    985
    
    
    $
    1,183Portion applied against quarterly interest payments
    
    
    1,388
    
    
    
    1,313
    
    
    
    690
    
    
    
    672$
    3,364
    
    
    $
    3,656
    
    
    $
    1,675
    
    
    $
    1,855
 10




---



##### 



Conversion rights
   Covenants
  Notes payable from business acquisitions and other
  4. Convertible Subordinated Notes
  11




---



##### 



5. Subordinated Notes and Warrant Liability
     6. Fair Value
    Level 1
    
    Quoted prices (unadjusted) in active markets for identical assets or liabilities;Level 2
    
    Inputs other than quoted prices included in Level 1 that are either directly or
indirectly observable;Level 3
    
    Unobservable inputs in which little or no market activity exists, therefore
requiring an entity to develop its own assumptions about the assumptions that
market participants would use in pricing.
 12




---



##### 



7. Stockholders Equity
 A. Common Stock
  B. Stock Subscription
  8. Stock-based Compensation
  13




---



##### 



Stock-based payment award activity
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual Term
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    (in years)
    
    
    Intrinsic ValueOutstanding at December 29, 2007
    
    
    5,158
    
    
    $
    1.28
    
    
    
    
    
    
    
    Granted
    
    
    120
    
    
    $
    1.69Exercised
    
    
    (210
    )
    
    $
    0.69
    
    
    
    
    
    
    $
    143Forfeited/expired/cancelled
    
    
    (486
    )
    
    
    1.99
    
    
    
    
    
    
    
    Outstanding at June 28, 2008
    
    
    4,582
    
    
    $
    1.24
    
    
    
    6.02
    
    
    $
    2,367Exercisable at June 28, 2008
    
    
    3,129
    
    
    $
    1.15
    
    
    
    5.07
    
    
    $
    2,024
   Weighted AverageGrant-DateShares
    
    
    Fair ValueNon-vested at December 29, 2007
    
    
    1,460
    
    
    $
    1.44Granted
    
    
    120
    
    
    $
    1.69Vested
    
    
    (128
    )
    
    $
    1.63Forfeited unvested
    
    
    
    
    
    
    Non-vested at June 28, 2008
    
    
    1,452
    
    
    $
    1.44
 Restricted stock units
  14




---



##### 



Restricted Stock Units (1)Outstanding at December 29, 2007
    
    
    Awarded
    
    
    482,000Vested
    
    
    Cancelled
    
    
    Outstanding at June 28, 2008
    
    
    482,000
 
 (1)
    
    Each stock unit represents one share of common stock.   9. Segments
  15




---



##### 



Centers
    
    
    E-commerce
    
    
    Network
    
    
    Corporate
    
    
    TotalHearing aids and other products revenues6 months ended June 28, 2008
    
    $
    54,846
    
    
    $
    56
    
    
    
    
    
    
    
    
    
    
    $
    54,9026 months ended June 30, 2007
    
    $
    45,047
    
    
    $
    60
    
    
    
    
    
    
    
    
    
    
    $
    45,107Service revenues6 months ended June 28, 2008
    
    $
    2,838
    
    
    $
    
    
    
    $
    1,075
    
    
    
    
    
    
    $
    3,9136 months ended June 30, 2007
    
    $
    2,590
    
    
    $
    
    
    
    $
    777
    
    
    
    
    
    
    $
    3,367Income (loss) from operations6 months ended June 28, 2008
    
    $
    11,169
    
    
    $
    (91
    )
    
    $
    845
    
    
    $
    (8,609
    )
    
    $
    3,3146 months ended June 30, 2007
    
    $
    9,567
    
    
    $
    (54
    )
    
    $
    543
    
    
    $
    (7,595
    )
    
    $
    2,4616 months ended June 28, 2008Depreciation and
amortization
    
    $
    1,070
    
    
    
    
    
    
    $
    
    
    
    $
    218
    
    
    $
    1,288Total assets
    
    $
    85,944
    
    
    
    
    
    
    $
    919
    
    
    $
    18,252
    
    
    $
    105,115Capital expenditures
    
    $
    757
    
    
    
    
    
    
    
    
    
    
    $
    50
    
    
    $
    8076 months ended June 30, 2007Depreciation and
amortization
    
    $
    854
    
    
    
    
    
    
    $
    1
    
    
    $
    170
    
    
    $
    1,025Total assets
    
    $
    71,811
    
    
    
    
    
    
    $
    936
    
    
    $
    17,029
    
    
    $
    89,776Capital expenditures
    
    $
    108
    
    
    
    
    
    
    
    
    
    
    $
    46
    
    
    $
    154
  Six months endedJune 28,
    
    
    June 30,2008
    
    
    2007Hearing aid revenues
    
    
    95.5
    %
    
    
    95.4
    %Other products revenues
    
    
    4.5
    %
    
    
    4.6
    %
  Six months endedJune 28,
    
    
    June 30,2008
    
    
    2007Hearing aid repairs
    
    
    46.4
    %
    
    
    49.2
    %Testing and other income
    
    
    53.6
    %
    
    
    50.8
    %
  Six months endedDollars in thousands
    
    June 28,
    
    
    June 30,2008
    
    
    2007General and administrative expense
    
    $
    8,391
    
    
    $
    7,425Corporate depreciation and amortization
    
    
    218
    
    
    
    170Corporate loss from operations
    
    $
    8,609
    
    
    $
    7,595
 16




---



##### 



United States
    
    
    Canada
    
    
    United States
    
    
    CanadaDollars in thousands
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007Hearing aid and
other products
revenues
    
    $
    46,524
    
    
    $
    8,378
    
    
    $
    39,640
    
    
    $
    5,467Service revenues
    
    
    3,576
    
    
    
    337
    
    
    
    3,103
    
    
    
    264Long-lived assets
    
    
    72,089
    
    
    
    16,485
    
    
    
    60,195
    
    
    
    14,465Total assets
    
    
    84,559
    
    
    
    20,556
    
    
    
    72,954
    
    
    
    16,822
 10. Liquidity
    11. Subsequent Events
   17




---



##### 



RECENT ACCOUNTING PRONOUNCEMENTS
  ,
   18




---



##### 



19




---



##### 



Forward Looking Statements
 This Form 10-Q and, in particular, this managements discussion and analysis contain or incorporate
a number of forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Act of 1934. These statements include those relating to the
Companys belief that its current cash and cash equivalents and cash flow from operations at
current net revenue levels will be sufficient to support the Companys operational needs through
the next twelve months; belief that the Company is in line to achieve its revenues growth objective
for the year of 15% to 20% and its revenues target to exceed $120 million in 2008; expectation that
in the remainder of 2008 the total cost of products sold before the Siemens rebate credits as a
percent of total net revenues will be consistent with the first six months of 2008; expectation
that in the remainder of 2008 the Siemens rebate credit in absolute dollars will remain consistent
with the first six months of 2008; expectation that additional center operating expenses due to
acquisitions should be consistent with the current center operating expenses when looked at as a
percent of total net revenues and long-term objective to reach an income from operations, in
percent of total net revenues, of 10% to 12%. These forward-looking statements are based on
current expectations, estimates, forecasts and projections about the industry and markets in which
we operate and managements beliefs and assumptions. Any statements that are not statements of
historical fact should be considered forward-looking statements and should be read in conjunction
with our consolidated financial statements and notes to the consolidated financial statements
included in this report. The statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions that are difficult to predict, including current cash
and cash equivalents and cash flow from operations at current net revenue levels will be sufficient
to support the Companys operational needs, achieving revenue growth objectives for the year of 15%
to 20%; achieving revenues target of over $120 million, total cost of products sold before Siemens
rebate credits as a percentage of total net revenues remaining consistent with the first six months of
2008; expectation that in the remainder of 2008 the Siemens rebate credits in absolute dollars will
remain consistent with the first six months of 2008; additional center operating expenses due to
acquisitions remaining consistent with the current center operating as a percentage of total net
revenues; and long-term objective to reach an income from operations, in percent of total net
revenues, of 10% to 12% and those risks described in the Companys annual report on Form 10-K for
fiscal 2007 filed with the Securities and Exchange Commission.
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 GENERAL
   20




---



##### 



RESULTS OF OPERATIONS
 For the three months ended June 28, 2008 and June 30, 2007
 Revenues
  2008
    
    
    2007
    
    
    Change
    
    
    % ChangeHearing aids and other products
    
    $
    28,220
    
    
    $
    23,166
    
    
    $
    5,054
    
    
    
    21.8
    %Services
    
    
    1,905
    
    
    
    1,754
    
    
    
    151
    
    
    
    8.6
    %Total net revenues
    
    $
    30,125
    
    
    $
    24,920
    
    
    $
    5,205
    
    
    
    20.9
    %
 2008
    
    
    2007
    
    
    Change
    
    
    % Change (3)Revenues from centers acquired in 2007 (1)
    
    $
    1,765
    
    
    $
    
    
    
    $
    1,765
    
    
    
    7.1
    %Revenues from centers acquired in 2008
    
    
    955
    
    
    
    
    
    
    
    955
    
    
    
    3.8
    %Revenues from acquired centers
    
    
    2,720
    
    
    
    
    
    
    
    2,720
    
    
    
    10.9
    %Revenues from comparable centers (2)
    
    
    27,405
    
    
    
    24,920
    
    
    
    2,485
    
    
    
    10.0
    %Total net revenues
    
    $
    30,125
    
    
    $
    24,920
    
    
    $
    5,205
    
    
    
    20.9
    %
 (1)
    
    Represents that portion of revenues from the 2007 acquired centers recognized for those
acquisitions that had less than one full year of revenues recorded in 2007 due to the
timing of their acquisition.(2)
    
    Also includes revenues from the network business segment as well as the impact of
fluctuation of the Canadian exchange rate.(3)
    
    The revenues from acquired centers percentage changes are calculated by dividing those
revenues by 2007 net revenues.
   Cost of Products Sold and Services
 Dollars in thousands
 2008
    
    
    2007
    
    
    Change
    
    
    %Hearing aids and other products
    
    $
    8,507
    
    
    $
    6,062
    
    
    $
    2,445
    
    
    
    40.3
    %Services
    
    
    609
    
    
    
    556
    
    
    
    53
    
    
    
    9.5
    %Total cost of products sold and services
    
    $
    9,116
    
    
    $
    6,618
    
    
    $
    2,498
    
    
    
    37.7
    %Percent of total net revenues
    
    
    30.3
    %
    
    
    26.6
    %
    
    
    3.7
    %
    
    
    13.9
    %
  21




---



##### 



2008
    
    
    2007
    
    
    Change
    
    
    %Base required payments on Tranche C forgiven
    
    $
    812
    
    
    $
    1,043
    
    
    $
    (231
    )
    
    
    (22.1
    )%Required payments of $65 per Siemens unit
from acquired centers on Tranche B forgiven
    
    
    173
    
    
    
    140
    
    
    
    33
    
    
    
    23.6
    %Interest expense on Tranches B and C forgiven
    
    
    690
    
    
    
    672
    
    
    
    18
    
    
    
    2.7
    %Total rebate credits
    
    $
    1,675
    
    
    $
    1,855
    
    
    $
    (180
    )
    
    
    (9.7
    )%Percent of total net revenues
    
    
    5.6
    %
    
    
    7.4
    %
    
    
    (1.8
    )%
    
    
    (24.3
    )%
  Expenses
 Dollars in thousands
 2008
    
    
    2007
    
    
    Change
    
    
    %Center operating expenses
    
    $
    14,549
    
    
    $
    13,143
    
    
    $
    1,406
    
    
    
    10.7
    %Percent of total net revenues
    
    
    48.3
    %
    
    
    52.7
    %
    
    
    (4.4
    )%
    
    
    (8.3
    )%General and administrative expenses
    
    $
    3,631
    
    
    $
    3,813
    
    
    $
    (182
    )
    
    
    (4.8
    )%Percent of total net revenues
    
    
    12.1
    %
    
    
    15.3
    %
    
    
    (3.2
    )%
    
    
    (20.9
    )%Depreciation and amortization
    
    $
    626
    
    
    $
    536
    
    
    $
    90
    
    
    
    16.8
    %Percent of total net revenues
    
    
    2.1
    %
    
    
    2.2
    %
    
    
    (0.1
    )%
    
    
    (4.5
    )%
   22




---



##### 



Interest Expense
 Dollars in thousands
 2008
    
    
    2007
    
    
    Change
    
    
    %Notes payable from business acquisitions and others (1)
    
    $
    243
    
    
    $
    140
    
    
    $
    103
    
    
    
    73.6
    %Siemens Tranches B and C  interest forgiven (2)
    
    
    690
    
    
    
    672
    
    
    
    18
    
    
    
    2.7
    %Siemens Tranches D and E
    
    
    234
    
    
    
    117
    
    
    
    117
    
    
    
    100.0
    %2003 Convertible Subordinated Notes (3)
    
    
    
    
    
    
    2,561
    
    
    
    (2,561
    )
    
    
    (100.0
    )%2005 Subordinated Notes (4)
    
    
    87
    
    
    
    207
    
    
    
    (120
    )
    
    
    (58.0
    )%Total interest expense
    
    $
    1,254
    
    
    $
    3,697
    
    
    $
    (2,443
    )
    
    
    (66.1
    )%
 2008
    
    
    2007
    
    
    Change
    
    
    %Total cash interest expense (5)
    
    $
    436
    
    
    $
    352
    
    
    $
    84
    
    
    
    23.9
    %Total non-cash interest expense (6)
    
    
    818
    
    
    
    3,345
    
    
    
    (2,527
    )
    
    
    (75.5
    )%Total interest expense
    
    $
    1,254
    
    
    $
    3,697
    
    
    $
    (2,443
    )
    
    
    (66.1
    )%
 (1)
    
    Includes $110,000 in 2008 of non-cash interest expense related to recording of notes at
their present value by discounting future payments to the market rate of interest (see Note 3 
Long-term Debt, Notes to Consolidated Financial Statements included herein).(2)
    
    The interest expense on Tranches B and C is forgiven by Siemens as long as the minimum
purchase requirements are met and a corresponding rebate credit is recorded as a reduction of
cost of products sold (see Note 3  Long-term Debt, Notes to Consolidated Financial
Statements included herein and Liquidity and Capital Resources, below).(3)
    
    Includes $2.6 million in 2007 of non-cash debt discount amortization (see Note 4 
Convertible Subordinated Notes, Notes to Consolidated Financial Statements included herein).(4)
    
    Includes $41,000 in 2008 and $134,000 in 2007 of non-cash debt discount amortization (see
Note 5  Subordinated Notes and Warrant Liability, Notes to Consolidated Financial Statements
included herein).(5)
    
    Represents the sum of the cash interest portion paid on the notes payable for business
acquisitions and others, the cash interest paid to Siemens on the Siemens Tranche D and E
loans, Subordinated Notes and the cash portion paid on the Convertible Subordinated in 2007.(6)
    
    Represents the sum of the non-cash interest expense related to recording the notes payable
for business acquisitions at their present value by discounting future payments to market rate
of interest, Tranches B and C, the non-cash interest imputed to the 2005 Subordinated Notes
and the 2003 Convertible Subordinated Notes in 2007 related to the debt discount amortization.
  Income Taxes
   23




---



##### 



Minority Interest
  For the six months ended June 30, 2008 and 2007
 Revenues
  2008
    
    
    2007
    
    
    Change
    
    
    % ChangeHearing aids and other products
    
    $
    54,902
    
    
    $
    45,107
    
    
    $
    9,795
    
    
    
    21.7
    %Services
    
    
    3,913
    
    
    
    3,367
    
    
    
    546
    
    
    
    16.2
    %Total net revenues
    
    $
    58,815
    
    
    $
    48,474
    
    
    $
    10,341
    
    
    
    21.3
    %
 2008
    
    
    2007
    
    
    Change
    
    
    % Change (3)Revenues from centers acquired in 2007 (1)
    
    $
    4,808
    
    
    $
    
    
    
    $
    4,808
    
    
    
    9.9
    %Revenues from centers acquired in 2008
    
    
    768
    
    
    
    
    
    
    
    768
    
    
    
    1.6
    %Revenues from acquired centers
    
    
    5,576
    
    
    
    
    
    
    
    5,576
    
    
    
    11.5
    %Revenues from comparable centers (2)
    
    
    53,239
    
    
    
    48,474
    
    
    
    4,765
    
    
    
    9.8
    %Total net revenues
    
    $
    58,815
    
    
    $
    48,474
    
    
    $
    10,341
    
    
    
    21.3
    %
 (1)
    
    Represents that portion of revenues from the 2007 acquired centers recognized for those
acquisitions that had less than one full year of revenues recorded in 2007 due to the
timing of their acquisition.(2)
    
    Also includes revenues from the network business segment as well as the impact of
fluctuation of the Canadian exchange rate.(3)
    
    The revenues from acquired centers percentage changes are calculated by dividing those
revenues by  2007 net revenues.
   Cost of Products Sold and Services
 Dollars in thousands
 2008
    
    
    2007
    
    
    Change
    
    
    %Hearing aids and other products
    
    $
    16,096
    
    
    $
    11,789
    
    
    $
    4,307
    
    
    
    36.5
    %Services
    
    
    1,154
    
    
    
    1,032
    
    
    
    122
    
    
    
    11.8
    %Total cost of products sold and services
    
    $
    17,250
    
    
    $
    12,821
    
    
    $
    4,429
    
    
    
    34.5
    %Percent of total net revenues
    
    
    29.3
    %
    
    
    26.4
    %
    
    
    2.9
    %
    
    
    11.0
    %
 24




---



##### 



2008
    
    
    2007
    
    
    Change
    
    
    %Base required payments on Tranche C forgiven
    
    $
    1,630
    
    
    $
    2,085
    
    
    $
    (455
    )
    
    
    (21.8
    )%Required payments of $65 per Siemens unit
from acquired centers on Tranche B forgiven
    
    
    346
    
    
    
    258
    
    
    
    88
    
    
    
    34.1
    %Interest expense on Tranches B and C forgiven
    
    
    1,388
    
    
    
    1,313
    
    
    
    75
    
    
    
    5.7
    %Total rebate credits
    
    $
    3,364
    
    
    $
    3,656
    
    
    $
    (292
    )
    
    
    (8.0
    )%Percent of total net revenues
    
    
    5.7
    %
    
    
    7.5
    %
    
    
    (1.8
    )%
    
    
    (24.0
    )%
   Expenses
 Dollars in thousands
 2008
    
    
    2007
    
    
    Change
    
    
    %Center operating expenses
    
    $
    28,572
    
    
    $
    24,742
    
    
    $
    3,830
    
    
    
    15.5
    %Percent of total net revenues
    
    
    48.6
    %
    
    
    51.0
    %
    
    
    (2.4
    )%
    
    
    (4.7
    )%General and administrative expenses
    
    $
    8,391
    
    
    $
    7,425
    
    
    $
    966
    
    
    
    13.0
    %Percent of total net revenues
    
    
    14.3
    %
    
    
    15.3
    %
    
    
    (1.0
    )%
    
    
    (6.5
    )%Depreciation and amortization
    
    $
    1,288
    
    
    $
    1,025
    
    
    $
    263
    
    
    
    25.7
    %Percent of total net revenues
    
    
    2.2
    %
    
    
    2.1
    %
    
    
    0.1
    %
    
    
    4.8
    %
   25




---



##### 



Interest Expense
 Dollars in thousands
 2008
    
    
    2007
    
    
    Change
    
    
    %Notes payable from business acquisitions and others (1)
    
    $
    475
    
    
    $
    278
    
    
    $
    197
    
    
    
    70.9
    %Siemens Tranches B and C interest (2)
    
    
    1,388
    
    
    
    1,313
    
    
    
    75
    
    
    
    5.7
    %Siemens Tranches D and E
    
    
    423
    
    
    
    176
    
    
    
    247
    
    
    
    140.3
    %2003 Convertible Subordinated Notes (3)
    
    
    
    
    
    
    3,163
    
    
    
    (3,163
    )
    
    
    (100.0
    )%2005 Subordinated Notes (4)
    
    
    208
    
    
    
    447
    
    
    
    (239
    )
    
    
    (53.5
    )%Total interest expense
    
    $
    2,494
    
    
    $
    5,377
    
    
    $
    (2,883
    )
    
    
    (53.6
    )%
 2008
    
    
    2007
    
    
    Change
    
    
    %Total cash interest expense (5)
    
    $
    808
    
    
    $
    752
    
    
    $
    56
    
    
    
    7.4
    %Total non-cash interest expense (6)
    
    
    1,686
    
    
    
    4,625
    
    
    
    (2,939
    )
    
    
    (63.5
    )%Total interest expense
    
    $
    2,494
    
    
    $
    5,377
    
    
    $
    (2,883
    )
    
    
    (53.6
    )%
 (1)
    
    Includes $263,000 in 2008 of non-cash interest expense related to recording of notes
at their present value by discounting future payments to the market rate of interest (see Note
3  Long-term Debt, Notes to Consolidated Financial Statements included herein).(2)
    
    The interest expense on Tranches B and C is forgiven by Siemens as long as the minimum
purchase requirements are met and a corresponding rebate credit is recorded as a reduction
of cost of products sold (see Note 3  Long-term Debt, Notes to Consolidated Financial
Statements included herein and Liquidity and Capital Resources, below).(3)
    
    Includes $2.9 million in 2007 of non-cash debt discount amortization (see Note 4 
Convertible Subordinated Notes, Notes to Consolidated Financial Statements included
herein).(4)
    
    Includes $109,000 in 2008 and $292,000 in 2007 of non-cash debt discount amortization
(see Note 5  Subordinated Notes and Warrant Liability, Notes to Consolidated Financial
Statements included herein).(5)
    
    Represents the sum of the cash interest portion paid on the notes payable for business
acquisitions and others, the cash interest paid to Siemens on the Siemens Tranche D and E
loans, Subordinated Notes and the cash portion paid on the Convertible Subordinated in
2007.(6)
    
    Represents the sum of the non-cash interest expense related to recording the notes
payable for business acquisitions at their present value by discounting future payments to
market rate of interest, Tranches B and C, the non-cash interest imputed to the 2005
Subordinated Notes and the 2003 Convertible Subordinated Notes in 2007 related to the debt
discount amortization.
  Income Taxes
  26




---



##### 



Minority Interest
  LIQUIDITY AND CAPITAL RESOURCES
 Siemens Facility
   Financing and rebate arrangement
   27




---



##### 



Calculation of Pro forma Rebates to HearUSA when at least 90% ofUnits Sold are from Siemens (1)Quarterly Siemens Unit Sales Compared to Prior Years Comparable Quarter90%  but < 95%
    
    95%  to 100%
    
    
    > 100% < 125
    %
    
    125% and >Tranche B Rebate (2)
    
    $65/ unit
    
    $65/ unit
    
    $65/ unit
    
    $65/ unitPlus
    
    Plus
    
    Plus
    
    PlusTranche C Rebate
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000Additional Volume Rebate
    
    
    
    
    
    
    156,250
    
    
    
    312,500
    
    
    
    468,750Interest Forgiveness Rebate (3)
    
    
    712,500
    
    
    
    712,500
    
    
    
    712,500
    
    
    
    712,500$
    1,212,500
    
    
    $
    1,368,750
    
    
    $
    1,525,000
    
    
    $
    1,681,250
 
 (1)
    
    Calculated using trailing twelve month units sold by the Company(2)
    
    Siemens units sold by acquired businesses ($65 per unit)(3)
    
    Assuming the first $30 million portion of the line of credit is fully utilized   28




---



##### 



Marketing arrangement
  Investor and other rights arrangement
    Notes payable from business acquisitions and other
  Working Capital
  29




---



##### 



Cash Flows
   30




---



##### 



Contractual Obligations
  Payments due by period (000s)Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    4  5
    
    
    Than 5Contractual obligations
    
    Total
    
    
    year
    
    
    years
    
    
    Years
    
    
    years$
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $Long-term debt (1 and 3)
    
    
    51,816
    
    
    
    13,564
    
    
    
    9,841
    
    
    
    28,411
    
    
    
    Subordinated notes
    
    
    660
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    Subtotal of obligations recorded on balance sheet
    
    
    52,476
    
    
    
    14,224
    
    
    
    9,841
    
    
    
    28,411
    
    
    
    Interest to be paid on long-term debt (2 and 3)
    
    
    13,923
    
    
    
    3,887
    
    
    
    6,023
    
    
    
    4,013
    
    
    
    Interest to be paid on subordinated notes
    
    
    8
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    20,412
    
    
    
    6,615
    
    
    
    9,343
    
    
    
    3,157
    
    
    
    1,297Employment agreements
    
    
    5,557
    
    
    
    2,669
    
    
    
    2,888
    
    
    
    
    
    
    
    Purchase obligations
    
    
    1,461
    
    
    
    651
    
    
    
    810
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    
    93,837
    
    
    
    28,054
    
    
    
    28,905
    
    
    
    35,581
    
    
    
    1,297
 
 (1)
    
    Approximately $29.0 million can be repaid through rebate credits from Siemens, including $2.2
million in less than 1 year and $4.4 million in years 1-3 and $22.4 million in years 4-5.(2)
    
    Interest on long-term debt includes the interest on the new Tranches B and C that can be
repaid through rebate credits from Siemens pursuant to the Amended and Restated Credit
Agreement, including $2.7 million in less than 1 year and $4.7 million in years 1-3 and $3.2
in years 4-5. Interest repaid through preferred pricing reductions was $2.7 million in 2007.
(See Note 3  Long-Term Debt, Notes to Consolidated Financial Statements included herein).(3)
    
    Principal and interest payments on long-term debt is based on cash payments and not the fair
value of the discounted notes (See Note 3  Long-Term Debt, Notes to Consolidated Financial
Statements included herein). CRITICAL ACCOUNTING POLICIES
  31




---



##### 



Goodwill
  Revenue recognition
       32




---



##### 



Allowance for doubtful accounts
   Sales returns
  Vendor rebates
  Marketing allowances
  33




---



##### 



Impairment of long-lived assets
  Stock-based compensation
 Share-Based Payment
    Income taxes
     34




---



##### 



RECENT ACCOUNTING PRONOUNCEMENTS
  ,
     35




---



##### 



Item 3. Quantitative and Qualitative Disclosure About Market Risk
  Fixed Rate
    
    
    
    
    
    Variable Rate
    
    
    Total9.5%
    
    
    7%
    
    
    5% to 13.9%Due February 2013
    
    
    Due August 2008
    
    
    Other$
    
    
    $
    
    
    $
    
    
    $(000s)
    
    
    (000s)
    
    
    (000s)
    
    
    (000s)2008
    
    
    
    (8,206
    )
    
    
    
    (660
    )
    
    
    
    (2,031
    )
    
    
    
    (10,897
    )2009
    
    
    
    (2,199
    )
    
    
    
    
    
    
    
    
    (3,925
    )
    
    
    
    (6,124
    )2010
    
    
    
    (2,199
    )
    
    
    
    
    
    
    
    
    (2,527
    )
    
    
    
    (4,726
    )2011
    
    
    
    (2,199
    )
    
    
    
    
    
    
    
    
    (1,387
    )
    
    
    
    (3,586
    )2012
    
    
    
    (2,199
    )
    
    
    
    
    
    
    
    
    (186
    )
    
    
    
    (2,385
    )2013
    
    
    
    (24,141
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,141
    )Total
    
    
    
    (41,143
    )
    
    
    
    (660
    )
    
    
    
    (10,056
    )
    
    
    
    (51,859
    )Estimated fair value
    
    
    
    (41,143
    )
    
    
    
    (658
    )
    
    
    
    (10,056
    )
    
    
    
    (51,857
    )
 36




---



##### 



Item 4. Controls and Procedures
    Part II Other Information
 Item 4. Submission of Matters to a Vote of Security Holders
   Against/Nominee
    
    For
    
    WithheldThomas W. Archibald
    
    
    24,340,709
    
    
    
    14,267,209Bruce N. Bagni
    
    
    24,340,840
    
    
    
    14,267,078Paul A. Brown, M. D.
    
    
    24,238,789
    
    
    
    14,369,129Joseph L. Gitterman III
    
    
    24,333,229
    
    
    
    14,274,689Stephen J. Hansbrough
    
    
    24,340,499
    
    
    
    14,267,419Michel Labadie
    
    
    24,337,049
    
    
    
    14,270,869David J. McLachlan
    
    
    24,341,109
    
    
    
    14,266,809
 37




---



##### 



Part II Other Information
 Item 6. Exhibits
 2.1
    
    Plan of Arrangement, including exchangeable share provisions (incorporated herein
by reference to Exhibit 2.3 to the Companys Joint Proxy Statement/Prospectus on
Form S-4 (Reg. No. 333-73022)).3.1
    
    Restated Certificate of Incorporation of HEARx Ltd., including certain certificates
of designations, preferences and rights of certain preferred stock of the Company
(incorporated herein by reference to Exhibit 3 to the Companys Current Report on
Form 8-K, filed May 17, 1996 (File No. 001-11655)).3.2
    
    Amendment to the Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1A to the Companys Quarterly Report on Form 10-Q for the
period ended June 28, 1996 (File No. 001-11655)).3.3
    
    Amendment to Restated Certificate of Incorporation including one for ten reverse
stock split and reduction of authorized shares (incorporated herein to Exhibit 3.5
to the Companys Quarterly Report on Form 10-Q for the period ending July 2, 1999
(File No. 001-11655)).3.4
    
    Amendment to Restated Certificate of Incorporation including an increase in
authorized shares and change of name (incorporated herein by reference to Exhibit
3.1 to the Companys Current Report on Form 8-K, filed July 17, 2002 (File No.
001-11655)).3.5
    
    Certificate of Designations, Preferences and Rights of the Companys 1999 Series H
Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4
to the Companys Current Report on Form 8-K, filed December 17, 1999 (File No.
001-11655)).3.6
    
    Certificate of Designations, Preferences and Rights of the Companys Special Voting
Preferred Stock (incorporated herein by reference to Exhibit 3.2 to the Companys
Current Report on Form 8-K, filed July 19, 2002 (File No. 001-11655)).3.7
    
    Amendment to Certificate of Designations, Preferences and Rights of the Companys
1999 Series H Junior Participating Preferred Stock (incorporated herein by
reference to Exhibit 4 to the Companys Current Report on Form 8-K, filed July 17,
2002 (File No. 001-11655)).3.8
    
    Certificate of Designations, Preferences and Rights of the Companys 1998-E
Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K, filed August 28, 2003 (File No. 001-11655)).3.9
    
    Amendment of Restated Certificate of Incorporation (increasing authorized capital)
(incorporated herein by reference to Exhibit 3.9 to the Companys Quarterly Report
on Form 10-Q for the quarter ended June 26, 2004).3.10
    
    Amended and Restated By-Laws of HearUSA, Inc. (effective May 9, 2005) (incorporated
herein by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K,
filed May 13, 2005).4.1
    
    Amended and Restated Rights Agreement, dated July 11, 2002 between HEARx and the
Rights Agent, which includes an amendment to the Certificate of Designations,
Preferences and Rights of the Companys 1999 Series H Junior Participating
Preferred Stock (incorporated herein by reference to Exhibit 4.9.1 to the Companys
Joint Proxy/Prospectus on Form S-4 (Reg. No. 333-73022)).4.2
    
    Form of Support Agreement among HEARx Ltd., HEARx Canada, Inc. and HEARx
Acquisition ULC (incorporated herein by reference to Exhibit 99.3 to the Companys
Joint Proxy Statement/Prospectus on Form S-4 (Reg No. 333-73022)).4.3
    
    Form of 2003 Convertible Subordinated Note due November 30, 2008 (incorporated
herein by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K,
filed December 31, 2003).9.1
    
    Form of Voting and Exchange Trust Agreement among HearUSA, Inc., HEARx Canada, Inc
and HEARx Acquisition ULC and ComputerShare Trust Company of Canada (incorporated
herein by reference to Exhibit 9.1 to the Companys Joint Proxy
Statement/Prospectus on Form S-4 (Reg. No. 333-73022)).31.1
    
    CEO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    CFO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    CEO and CFO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Indicates a management compensatory contract or arrangement. 38




---



##### 



SIGNATURES
  August 12, 2008
    HearUSA Inc.
(Registrant)/s/ Stephen J. HansbroughStephen J. HansbroughChief Executive Officer
HearUSA, Inc./s/ Gino ChouinardGino ChouinardPresident and Chief Financial Officer
HearUSA, Inc. 39