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    June 30, 2001

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

---

|                                                  |  |                    
|------------------------------------------------- |  | -------------------
|Delaware                                          |  | 22-2748248         
|                                                 
|                                                 
|                                                 
|                                                 
|(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)         

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  X   No

On July 31, 2001, 13,310,039 shares of the Registrants Common Stock were
outstanding.





---



INDEX

|                                                                    |  |      |         | 
|------------------------------------------------------------------- |  | ---- | ------- | 
|                                                                    |  | Page
|                                                                    |  |     
|PART I. FINANCIAL INFORMATION                                      
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Item 1. Financial Statements:                                      
|                                                                   
|Consolidated Balance Sheets                                         |  |      | 3       | 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|June 30 , 2001 and December 29, 2000                               
|                                                                   
|Consolidated Statements of Operations                               |  |      | 4       | 
|Six months ended June 30, 2001 and June 30, 2000                   
|                                                                   
|Consolidated Statements of Operations                               |  |      | 5       | 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Three months ended June 30, 2001 and June 30, 2000                 
|                                                                   
|Consolidated Statements of Cash Flows                               |  |      | 6       | 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Six months ended June 30, 2001 and June 30, 2000                   
|                                                                   
|Notes to Consolidated Financial Statements                          |  |      | 78     | 
|                                                                   
|Item 2. Managements Discussion and Analysis of Financial Condition |  |      | 912    | 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|and Results of Operations                                          
|                                                                   
|Item 3. Quantitative and Qualitative Disclosure about Market Risk   |  |      | 13      | 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|PART II. OTHER INFORMATION                                         
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Item 2. Changes in Securities and Use of Proceeds                   |  |      | 13      | 
|                                                                   
|Item 4. Submission of Matters to a Vote of Security Holders         |  |      | 13      | 
|                                                                   
|Item 5. Other Information                                           |  |      | 13      | 
|                                                                   
|Item 6. Exhibits and Reports on Form 8-K                            |  |      | 14  16 | 
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|Signatures                                                          |  |      | 17      | 

2



---



HEARx Ltd.
Consolidated Balance Sheets



|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |              |             |           |            | 
|--------------------------------------- | ------------------------------------------------- | ----------------------------------------------------- | ------------------------------------------ | --------------------------------------------------- | ----------- | ----------- | ---------- | ------------ | ----------- | --------- | ---------- | 
|                                        |                                                   |                                                       |                                            |                                                     |             | June 30,    |            | December 29,
|                                        |                                                   |                                                       |                                            |                                                     |             | 2001        |            | 2000        
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                        |                                                   |                                                       |                                            |                                                     |             | (unaudited) |            | (audited)   
|Current assets:                        
|                                       
|                                       
|                                       
|                                       
|                                        | Cash and cash equivalents                         |                                                       | $                                          | 6,011,569                                           |             |             | $          | 4,250,413    |            
|                                       
|                                       
|                                       
|                                       
|                                        | Investment securities                             |                                                       |                                            | 993,225                                             |             |             |            | 993,224      |            
|                                       
|                                       
|                                       
|                                       
|                                        | Accounts and notes receivable, less allowance for
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       | doubtful accounts of $236,370 and $212,657 |                                                     |             | 4,355,052   |            |              |             | 5,734,497 |           
|                                       
|                                       
|                                       
|                                       
|                                        | Inventories                                       |                                                       |                                            | 519,461                                             |             |             |            | 500,582      |            
|                                       
|                                       
|                                       
|                                       
|                                        | Prepaid expenses                                  |                                                       |                                            | 653,009                                             |             |             |            | 860,272      |            
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       |                                            | Total current assets                                |             |             | 12,532,316 |              |             |           | 12,338,988 | 
|                                       
|                                       
|                                       
|                                       
|Property and equipment  net            |                                                   |                                                       | 7,646,276                                  |                                                     |             |             | 7,595,991  |             
|                                       
|                                       
|                                       
|                                       
|Deposits and other                      |                                                   |                                                       | 2,162,156                                  |                                                     |             |             | 1,937,144  |             
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                        |                                                   | $                                                     | 22,340,748                                 |                                                     |             | $           | 21,872,123 |             
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       |                                            | LIABILITIES AND STOCKHOLDERS EQUITY               
|                                       
|                                       
|                                       
|                                       
|Current liabilities:                   
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | Accounts payable and accrued expenses                 |                                            | $                                                   | 6,169,564   |             |            | $            | 7,377,495   |          
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | Accrued salaries and other compensation               |                                            |                                                     | 743,910     |             |            |              | 1,071,208   |          
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | Current maturities of long term debt                  |                                            |                                                     | 1,845,128   |             |            |              | 152,387     |          
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       | Dividends payable                          |                                                     |             | 1,603,288   |            |              |             | 1,387,066 |           
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       |                                            | Total current liabilities                           |             |             | 10,361,890 |              |             |           | 9,988,156  | 
|                                       
|                                       
|                                       
|                                       
|Long term debt, less current maturities |                                                   |                                                       | 6,206,075                                  |                                                     |             |             | 175,887    |             
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                       
|                                       
|                                       
|                                       
|Commitments and contingencies           |                                                   |                                                       |                                           |                                                     |             |             |           |             
|                                       
|                                       
|                                       
|                                       
|Stockholders equity:                  
|                                       
|                                       
|                                       
|                                       
|                                        | Preferred stock:                                 
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | (Aggregate liquidation preference $10,858,288 and    
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | $11,902,067) $1 par, 2,000,000 shares authorized     
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       |                                            | Series I Convertible 435 and 500 shares outstanding |             |             | 435        |              |             |           | 500        | 
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       |                                            | Series H Junior Participating 0 shares outstanding  |             |             |           |              |             |           |           | 
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       |                                            | 1998 Convertible 4,905 and 5,515 shares outstanding |             |             | 4,905      |              |             |           | 5,515      | 
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       |                                            | Total preferred stock                               |             |             | 5,340      |              |             |           | 6,015      | 
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | Common stock: $.10 par; 20,000,000 shares authorized;
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       | 13,730,636 and 12,364,139 shares issued    |                                                     |             | 1,373,061   |            |              |             | 1,236,414 |           
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   |                                                       | Stock Subscription                         |                                                     |             | (412,500    | )          |              |             |          |           
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | Additional paid-in capital                            |                                            |                                                     | 93,145,782  |             |            |              | 92,695,792  |          
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | Accumulated deficit                                   |                                            |                                                     | (85,855,459 | )           |            |              | (79,746,700 | )        
|                                       
|                                       
|                                       
|                                       
|                                        |                                                   | Treasury stock, at cost: 518,660 common shares        |                                            |                                                     | (2,483,441  | )           |            |              | (2,483,441  | )        
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                        |                                                   |                                                       |                                            | Total stockholders equity                          |             |             | 5,772,783  |              |             |           | 11,708,080 | 
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             
|                                        |                                                   | $                                                     | 22,340,748                                 |                                                     |             | $           | 21,872,123 |             
|                                        |                                                   |                                                       |                                            |                                                     |             |             |            |             

See accompanying notes to the consolidated financial statements

3



---



HEARx Ltd.
Consolidated Statements of Operations
Six Months Ended June 30, 2001 and June 30, 2000

|                                              |          |                                     |                          |            |             |            |             |            |            |            | 
|--------------------------------------------- | -------- | ----------------------------------- | ------------------------ | ---------- | ----------- | ---------- | ----------- | ---------- | ---------- | ---------- | 
|                                              |          |                                     |                          |            | 2001        |            | 2000       
|                                              |          |                                     |                          |            |             |            |            
|                                              |          |                                     |                          |            | (Unaudited) |            | (Unaudited)
|                                             
|Net revenues                                  |          | $                                   | 23,930,243               |            |             | $          | 28,296,183  |           
|                                              |          |                                     |                          |            |             |            |             |           
|Costs and expenses:                          
|                                             
|                                             
|                                             
|                                             
|                                              |          | Cost of products sold               |                          |            | 7,853,360   |            |             |            | 9,829,774  |           
|                                             
|                                             
|                                             
|                                             
|                                              |          | Center operating expenses           |                          |            | 15,187,862  |            |             |            | 14,007,075 |           
|                                             
|                                             
|                                             
|                                             
|                                              |          | General and administrative expenses |                          |            | 5,169,047   |            |             |            | 4,270,382  |           
|                                             
|                                             
|                                             
|                                             
|                                              |          | Depreciation and amortization       |                          |            | 1,263,981   |            |             |            | 1,286,293  |           
|                                             
|                                             
|                                             
|                                             
|                                              |          | Interest expense                    |                          |            | 175,137     |            |             |            | 16,281     |           
|                                              |          |                                     |                          |            |             |            |             |           
|                                              |          |                                     | Total costs and expenses |            |             | 29,649,387 |             |            |            | 29,409,805 | 
|                                              |          |                                     |                          |            |             |            |             |           
|                                              | Net loss |                                     |                          | (5,719,144 | )           |            |             | (1,113,622 | )         
|                                             
|                                             
|                                             
|                                             
|Dividends on preferred stock                  |          |                                     | (389,615                 | )          |             |            | (302,771    | )         
|                                              |          |                                     |                          |            |             |            |             |           
|Net loss applicable to common shareholders    |          | $                                   | (6,108,759               | )          |             | $          | (1,416,393  | )         
|                                              |          |                                     |                          |            |             |            |             |           
|Net loss per common share  basic and diluted |          | $                                   | (0.48                    | )          |             | $          | (0.12       | )         
|                                              |          |                                     |                          |            |             |            |             |           
|Weighted average number of shares of         
|                                             
|                                             
|                                             
|                                             
|                                              |          | Common stock outstanding            |                          |            | 12,802,285  |            |             |            | 11,782,598 |           
|                                              |          |                                     |                          |            |             |            |             |           

See accompanying notes to the consolidated financial statements

4



---



HEARx Ltd.
Consolidated Statements of Operations
Three Months Ended June 30, 2001 and June 30, 2000

|                                              |  |                                     |                          |   |             |            |             |   |            |            | 
|--------------------------------------------- |  | ----------------------------------- | ------------------------ | - | ----------- | ---------- | ----------- | - | ---------- | ---------- | 
|                                              |  |                                     |                          |   | 2001        |            | 2000       
|                                              |  |                                     |                          |   |             |            |            
|                                              |  |                                     |                          |   | (Unaudited) |            | (Unaudited)
|                                             
|                                             
|                                             
|                                             
|Net revenues                                  |  | $                                   | 11,395,478               |   |             | $          | 15,174,416  |  
|                                              |  |                                     |                          |   |             |            |             |  
|Costs and expenses:                          
|                                             
|                                             
|                                             
|                                             
|                                              |  | Cost of products sold               |                          |   | 3,586,782   |            |             |   | 5,532,724  |           
|                                             
|                                             
|                                             
|                                             
|                                              |  | Center operating expenses           |                          |   | 7,225,350   |            |             |   | 7,263,467  |           
|                                             
|                                             
|                                             
|                                             
|                                              |  | General and administrative expenses |                          |   | 2,603,345   |            |             |   | 2,158,383  |           
|                                             
|                                             
|                                             
|                                             
|                                              |  | Depreciation and amortization       |                          |   | 621,938     |            |             |   | 641,928    |           
|                                             
|                                             
|                                             
|                                             
|                                              |  | Interest expense                    |                          |   | 165,218     |            |             |   | 8,077      |           
|                                              |  |                                     |                          |   |             |            |             |  
|                                              |  |                                     | Total costs and expenses |   |             | 14,202,633 |             |   |            | 15,604,579 | 
|                                              |  |                                     |                          |   |             |            |             |  
|Net loss                                      |  |                                     | (2,807,155               | ) |             |            | (430,163    | )
|                                             
|                                             
|                                             
|                                             
|Dividends on preferred stock                  |  |                                     | (188,380                 | ) |             |            | (166,735    | )
|                                              |  |                                     |                          |   |             |            |             |  
|Net loss applicable to common shareholders    |  | $                                   | (2,995,535               | ) |             | $          | (596,898    | )
|                                              |  |                                     |                          |   |             |            |             |  
|Net loss per common share  basic and diluted |  | $                                   | (0.23                    | ) |             | $          | (0.05       | )
|                                              |  |                                     |                          |   |             |            |             |  
|Weighted average number of shares of         
|                                             
|                                             
|                                             
|                                             
|                                              |  | Common stock outstanding            |                          |   | 13,102,402  |            |             |   | 11,934,768 |           
|                                              |  |                                     |                          |   |             |            |             |  

See accompanying notes to the consolidated financial statements

5



---



HEARx Ltd.
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 and June 30, 2000

|                                                     |                                              |                  |            |             |            |             |            |            |           |  
|---------------------------------------------------- | -------------------------------------------- | ---------------- | ---------- | ----------- | ---------- | ----------- | ---------- | ---------- | --------- | -
|                                                     |                                              |                  |            | 2001        |            | 2000       
|                                                     |                                              |                  |            |             |            |            
|                                                     |                                              |                  |            | (Unaudited) |            | (Unaudited)
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from operating activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|Net loss                                             |                                              | $                | (5,719,144 | )           |            | $           | (1,113,622 | )         
|                                                    
|                                                    
|                                                    
|                                                    
|Adjustments to reconcile net loss to net cash       
|                                                    
|                                                    
|                                                    
|                                                    
|Provided/(used) by operating activities:            
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Depreciation and amortization                |                  |            | 1,263,981   |            |             |            | 1,286,293  |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Provision/(recoveries) for doubtful accounts |                  |            | 154,397     |            |             |            | (190,834   | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Loss on disposition of property              |                  |            | 90,673      |            |             |            | 28,508     |          
|                                                    
|                                                    
|                                                    
|                                                    
|(Increase) decrease in:                             
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Accounts and notes receivable                |                  |            | 1,225,047   |            |             |            | (684,785   | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Inventories                                  |                  |            | (18,880     | )          |             |            | 76,298     |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Prepaid expenses                             |                  |            | (75,278     | )          |             |            | (293       | )        
|                                                    
|                                                    
|                                                    
|                                                    
|Increase (decrease) in:                             
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                              | Accounts payable |            |             | (1,207,945 | )           |            |            | 1,518,197 |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                              | Accrued expenses |            |             | (327,284   | )           |            |            | (895,901  | )
|                                                     |                                              |                  |            |             |            |             |            |           
|Net cash (used)/provided in operating activities     |                                              |                  | (4,614,433 | )           |            |             | 23,861     |           
|                                                     |                                              |                  |            |             |            |             |            |           
|Cash flows from investing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of property and equipment           |                  |            | (1,095,394  | )          |             |            | (724,711   | )        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of property and equipment |                  |            |            |            |             |            | 2,587      |          
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of investments                      |                  |            |            |            |             |            | (3,498,039 | )        
|                                                     |                                              |                  |            |             |            |             |            |           
|                                                    
|                                                    
|                                                    
|                                                    
|Net cash used by investing activities                |                                              |                  | (1,095,394 | )           |            |             | (4,220,163 | )         
|                                                     |                                              |                  |            |             |            |             |            |           
|Cash flows from financing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|Proceeds from issuance of long-term debt             |                                              |                  | 7,500,000  |             |            |             |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|Principle payments:                                 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term debt                               |                  |            | (29,084     | )          |             |            | (277,612   | )        
|                                                    
|                                                    
|                                                    
|                                                    
|Acquisition of treasury stock                        |                                              |                  |           |             |            |             | (193,901   | )         
|                                                    
|                                                    
|                                                    
|                                                    
|Proceeds from the issuance of employee stock options |                                              |                  | 67         |             |            |             |           |           
|                                                    
|                                                    
|                                                    
|                                                    
|Proceeds from the issuance of stock, net of expenses |                                              |                  |           |             |            |             | 4,536,427  |           
|                                                     |                                              |                  |            |             |            |             |            |           
|Net cash provided by financing activities            |                                              |                  | 7,470,983  |             |            |             | 4,064,914  |           
|                                                     |                                              |                  |            |             |            |             |            |           
|Net increase (decrease) in cash and cash equivalents |                                              |                  | 1,761,156  |             |            |             | (131,388   | )         
|                                                     |                                              |                  |            |             |            |             |            |           
|Cash and cash equivalents at beginning of period     |                                              |                  | 4,250,413  |             |            |             | 2,857,187  |           
|                                                     |                                              |                  |            |             |            |             |            |           
|Cash and cash equivalents at end of period           |                                              | $                | 6,011,569  |             |            | $           | 2,725,799  |           
|                                                     |                                              |                  |            |             |            |             |            |           

See accompanying notes to the consolidated financial statements

6



---



HEARx Ltd.
Notes to Consolidated Financial Statements
(unaudited)

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year
ending December 29, 2001. For further information, refer to the audited
consolidated financial statements and footnotes thereto included in the
Companys annual report on Form 10-K for the year ended December 29, 2000.

1.      Summary of Significant Accounting Policies

Reclassifications

Certain amounts in the 2000 consolidated financial statements have been
reclassified in order to conform to the 2001 presentation.

Segments

The Companys operations are organized by centers in geographic regions:
the Northeast, Florida, and California. These regions comprise one
operating segment. Net revenues by region for the Northeast, Florida and
California were approximately $5,394,000, $9,691,000 and $8,744,000
during the six months ended June 30, 2001 and $6,880,000, $12,631,000 and
$8,672,000 during the six months ended June 30, 2000, respectively.
Operating profits and losses at the center level for the six months ended
June 30, 2001 were an operating loss of approximately $962,000 for the
Northeast, and operating profits of approximately $768,000 and $982,000
for Florida and California, respectively, compared to operating profits of
approximately $528,000, $2,581,000 and $1,237,000 for the Northeast,
Florida and California, respectively, for the six months ended June 30,
2000. Operating profits at the center level are computed before corporate
general and administrative expenses, depreciation/amortization and
preferred dividends. Center operations depreciation amounted to $888,000
and $936,000 for the six months ended June 30, 2001 and the six months
ended June 30, 2000, respectively. Center operations capital
expenditures amounted to $765,000 in the six months ended June 30, 2001
as compared to $445,000 for the six months ended June 30, 2000.

2.     Stockholders Equity

Conversion of Preferred Stock

During the six months ended June 30, 2001, 610 shares of the 1998
Convertible Preferred Stock and 65 shares of the Series I Convertible
Preferred Stock were converted into 672,310 and 494,148 shares of Common
Stock, respectively.

Common Stock

During the six months ended June 30, 2001, no warrants were exercised.
Employee stock options were exercised resulting in the issuance of 35
shares of Common Stock.

7



---



HEARx Ltd.
Notes to Consolidated Financial Statements
(unaudited)

Stock Subscription

On April 1, 2001 the Company sold 200,000 shares of Common Stock, par
value $.10 per share, for $2.0625 per share, and received a secured,
nonrecourse promissory note for the principal amount of $412,500. The
principal amount of the note and the accrued interest is payable on April
1, 2006. The note bears interest at the prime rate published by the Wall
Street Journal adjusted annually. At June 30, 2001, the interest rate on
the note was 8%. The $412,500 note has been recorded as Stock Subscription
in stockholders equity in the accompanying balance sheet.

3.     Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations(SFAS 141),and No. 142,
Goodwill and Other Intangible Assets(SFAS 142).SFAS 141 requires the
use of the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company
recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon
adoption of SFAS 142, that the Company reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for
the purposes of assessing potential future impairments of goodwill,
reassess the useful lives of other existing recognized intangible assets,
and cease amortization of intangible assets with an indefinite useful
life. An intangible asset with an indefinite useful life should be tested
for impairment in accordance with the guidance in SFAS 142. SFAS 142 is
required to be applied in fiscal years beginning after December 15, 2001
to all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. SFAS 142
requires the Company to complete a transitional goodwill impairment test
six months from the date of adoption. The Company is also required to
reassess the useful lives of other intangible assets within the first
interim quarter after adoption of SFAS 142. The Companys previous
business combinations were accounted for using the purchase method. The
impact of the adoption of SFAS 141 and SFAS 142 on the Companys financial
position and results of operations is not expected to be material.

4.     Long  term Debt

On April 23, 2001, the Company and Siemens Hearing Instruments, Inc.
(Siemens) signed a Letter of Intent (LOI) pursuant to which the
parties intend to form a marketing and promotional alliance in the United
States.

As part of this LOI, Siemens agreed to provide the Company with a
five-year $7.5 million line of credit with interest at 12%, payable
quarterly. These terms of the LOI became binding to the parties on April
27, 2001, HEARx first drew on the line of credit. The Company has agreed
to purchase from Siemens at least 70% and up to 90% of HEARx total hearing
aid requirements over the next five years. As the Company purchases
products from Siemens, Siemens will pay to the Company certain rebates
which must be used to pay down the quarterly installments of principal and
interest under the five-year line of credit. As of June 30, 2001, the
Company has drawn all of the $7.5 million on the line of credit.

8



---



HEARx Ltd.
Notes to Consolidated Financial Statements
(unaudited)

Pursuant to the agreement with Siemens, in the event of a takeover of the
Company by a third party, the entire outstanding amount under the line of
credit will be immediately due
and payable and the supply arrangements may be terminated upon payment to
Siemens of a significant breakup fee.

Subsequently, on or about June 25, 2001, the Company and Helix Hearing
Care of America Corp. (see note 5) obtained a financing commitment from
Siemens that could aggregate to as much as $70 million if the HEARx-Helix
combination is consummated and HEARx and Helix meet certain business
goals. This $70 million commitment includes the $7.5 million line of
credit to HEARx of April 23, 2001 as well as a previously funded $3.5
million line of credit to Helix. The parties are currently working on
definitive agreements reflecting these financing commitments.

5.     Subsequent Events

On July 27, 2001, the Company and Helix Hearing Care of America Corp. , a
Canadian corporation (Helix), signed a definitive merger agreement.
Helix owns or manages 138 hearing healthcare clinics located in
Massachusetts, Pennsylvania, New York, Ohio, Michigan, Wisconsin,
Minnesota, Washington and Arizona as well as in the Provinces of Ontario
and Quebec. The boards of directors of both companies have unanimously
approved the transaction. The transaction is subject to shareholder,
Canadian court, certain third party and other regulatory approvals. The
Company will file a registration statement/proxy on Form S-4 with the U.S.
Securities and Exchange Commission, which will contain all relevant
information about the transaction. The transaction is expected to close
before year-end.

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 aggressively advertising to the
non-insured self-pay or retail market, and positioning the Company as the
leading provider of hearing care to the benefited populations covered by
managed care contracts.

HEARx intends, as its long-term 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 and services. The Company is currently expanding its
hearing care center network through its joint venture in California, HEARx
West LLC. The joint venture agreement provides for a 50/50 ownership by
the Company and the Permanente Federation and its affiliate Kaiser
Foundation Health Plan, with the centers bearing the HEARx name. The
Company currently operates 22 of these centers in California. In
addition, the Company has recently signed a definitive merger agreement
with Helix. (see note 5).

The Company has developed a national call center, which began beta testing
for five Florida centers in mid-November 2000. During the second quarter
of 2001, an additional forty- seven centers began using the call center,
and as of July 31, 2001 there were seventy-five centers utilizing the
call center. The national call center is responsible for both inbound and
outbound marketing. The call center was designed to increase the
effectiveness of advertising, and is expected to be fully operational by
September 2001.

Effective January 1, 2001, several insurance companies with which the
Company has contracts significantly changed their contract benefits or
service areas. While some insurance companies increased their Medicare
benefits, others either limited or discontinued Medicare benefits. The
Company believes these changes will not have a long-term material adverse
effect on the Companys financial condition or results of operations. The
Company also believes that the loss of any single managed care contract
will not have a long-term material adverse effect on its financial
condition or results of operations.

On May 8, 2001, responding to the slowdown in hearing aid sales, the
Company announced it would reduce annual expenses by approximately six
million dollars. The cost control measures are expected to reduce annual
revenues needed to break even to approximately $60 million from $70
million. As of July 31, 2001, the Company has reduced its staff by
approximately 8% and has initiated rollbacks in marketing and
discretionary expenses.

RESULTS OF OPERATIONS

For the three months ended June 30, 2001 compared to the three months
ended June 30, 2000

Net revenues decreased $3,778,938, or 24.9%, to $11,395,478 in the second
quarter of 2001 from $15,174,416 in the comparable quarter of 2000. The
decrease in revenues resulted primarily from the decrease in revenues from
the Companys Florida and Northeast centers. Net revenues in Florida and
the Northeast decreased $2,018,170, or 31.6% and $1,270,103, or 32.3% to
$4,372,656 and $2,666,826, respectively, for the quarter ended June 30,
2001 from $6,390,826 and $3,936,929 for the comparable quarter of 2000.
Management believes the decrease in revenues is the result of the overall
downward trend in the nations economy. Management believes that the
slowing

10



---



economy has caused the Companys primary market, the nations
elderly population, to reduce discretionary spending.

Cost of products sold decreased $1,945,942, or 35.2%, to $3,586,782 in the
second quarter of 2001 from $5,532,724 in the comparable quarter of 2000.
The decrease in the cost of products sold is a direct result of the
decrease in net revenues. The cost of products sold as a percent of net
revenues, which was 31.5% and 36.5% for the second quarter of 2001 and
2000, respectively, fluctuates from period to period due to retail pricing
and changing marketing strategies.

Center operating expenses remained relatively constant in the second
quarter of 2001 compared to the second quarter of 2000. This is primarily
the result of the cost reduction plan implemented by the Company in May
2001. The plan included the reduction of staff by approximately 8% and
rollbacks in advertising and discretionary expenses, which was offset by a
$78,000 write off of leasehold improvements due to a center relocation.

General and administrative expenses increased $444,963, or 20.6%, to
$2,603,345 in the second quarter of 2001 from $2,158,383 in the comparable
quarter of 2000. This increase is partially due to the expansion of
corporate administrative functions, which includes the implementation of
the national call center. The costs associated with this were
approximately $226,000, which included salaries and wages of $140,000 and
occupancy costs, including rent, common area maintenance charges and
utilities of $77,000. In addition, professional service fees increased
$29,721, or 27.7%, to $136,961 in the second quarter of 2001 from $107,240
in the comparable quarter of 2000. This increase is primarily the result
of additional fees paid to the Companys independent public accountants
and attorneys for additional services. Shareholder relations expense
increased to $194,547 in the second quarter of 2001 from $57,791 in the
comparable quarter of 2000 as a result of the Companys retention of an
investment banking firm to render services with respect to financial
planning and public relations.

Depreciation and amortization expense decreased $19,990, or 3.1%, to
$621,938 in the second quarter of 2001 from $641,928 in the comparable
quarter of 2000.

For the six months ended June 30, 2001 compared to June 30, 2000

Net revenues decreased $4,365,940, or 15.4%, to $23,930,243 in the first
six months of 2001 from $28,296,183 in the comparable period of 2000.
The decrease in revenues resulted primarily from the decrease in revenues
from the Companys Florida and Northeast centers. Net revenues in Florida
and the Northeast decreased $2,939,580, or 23.2% and $1,485,862, or 21.6%
to $9,691,031 and $5,394,384, respectively, for the six months ended June
30, 2001 from $12,630,611 and $6,880,246 for the comparable period of
2000. Management believes the decrease in revenues for the six months
ended June 30, 2001 as compared with the comparable period of 2000 is
the result of the overall downward trend in the nations economy.
Management believes that the slowing economy has caused the Companys
primary market, the nations elderly population, to reduce discretionary
spending.

Cost of products sold decreased $1,976,414, or 20.1%, to $7,853,360 in the
first six months of 2001 from $9,829,774 in the comparable period of 2000.
The decrease in the cost of products sold is a direct result of the
decrease in net revenues. The cost of products sold as a percent of net
revenues, which was 32.8% and 34.7% for the first six months of 2001 and
2000 respectively, fluctuates from period to period due to retail pricing
and changing marketing strategies.

Center operating expenses increased $1,180,787, or 8.4%, to $15,187,862 in
the first six months of 2001 from $14,007,075 in the comparable period of
2000. Other operating expenses increased $679,485 to $1,642,144 in the

11



---



six months ended June 30, 2001 from $962,084 in the comparable period of
2000. This increase is attributable to bad debt expense of $154,000 for
the six months ended June 30, 2001 in comparison to a net recovery of bad
debts of approximately $191,000 for the comparable period of 2000. In
addition, a $78,000 write off of leasehold improvements due to a center
relocation occurred in the six months ended June 30, 2001.

General and administrative expenses increased $898,665, or 21% to
$5,169,047 in the first six months of 2001 from $4,270,382 in the
comparable period of 2000. This increase is partially due to the expansion
of corporate administrative functions, which includes the implementation
of the national call center. The costs associated with this were
approximately $383,000, which included salaries and wages of $251,000 and
occupancy costs, including rent, common area maintenance charges and
utilities of $105,000. In addition, professional service fees increased
$73,456, or 36.1%, to $276,524 for the six months ended June 30, 2001
from $203,066 in the comparable period of 2000. This increase is primarily
the result of additional fees paid to the Companys independent public
accountants and attorneys for additional services. Shareholder relations
expense increased to $311,174 for the six months ended June 30, 2001
from $84,994 in the comparable period of 2000. This increase is the
result of the Companys retention of an investment banking firm to render
services with respect to financial planning and public relations.

Depreciation and amortization expense remained relatively constant at
$1,263,981 for the six months ended June 30, 2001 compared to $1,286,293
for the six months ended June 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

Working capital decreased $180,406 to $2,170,426 as of June 30, 2001 from
$2,350,832 as of December 29, 2000. In April 2001, the Company obtained
a $7.5 million five-year line of credit from Siemens (see note 4). The
Company believes that its funds available under the line of credit, credit
commitment, current cash, investment securities and revenues from
operations will be sufficient to support the Companys operational needs
through the next twelve months, although there can be no assurance that
unexpected capital needs will not arise for which the credit line, credit
commitment, cash and revenues from operations may be insufficient.

Net cash provided by operating activities decreased from $23,861 for the
six months ended June 30, 2001, to net cash used of $4,614,433 for the six
months ended June 30, 2001. The increase in cash used by operating
activities was primarily the result of the increase of operating losses of
approximately $4,606,000.

Net cash used by investing activities decreased from $4,220,163 for the
six months ended June 30, 2000, to $1,095,394 for the six months ended
June 30, 2001. In the six months ended June 30, 2000, the Company used
approximately $3,500,000 to purchase investment securities. Equipment for
the national call center and wide area network costing approximately
$485,000 was purchased during the six months ended June 30, 2001. There
were no investment securities purchased for the six months ended June 30,
2001.

Net cash provided by financing activities increased from $4,064,914 for
the six months ended June 30, 2000 to $7,470,983 for the six months ended
June 30, 2001. This increase is the result of the $7.5 million five-year
line of credit from Siemens. For the six months ended June 30, 2000, net
proceeds of $4,585,000 were received from a preferred stock offering.
There was no stock offering for the six months ended June 30, 2001.

12



---



RECENT DEVELOPMENTS

On July 27, 2001, the Company and Helix, a Canadian corporation, signed a
definitive merger agreement. Helix owns or manages 138 hearing healthcare
clinics located in Massachusetts, Pennsylvania, New York, Ohio, Michigan,
Wisconsin, Minnesota, Washington and Arizona as well as in the Provinces
of Ontario and Quebec. The boards of directors of both companies have
unanimously approved the transaction. The transaction is
subject to shareholder, Canadian court, certain third party and other
regulatory approvals. The Company will file a registration/proxy statement
on Form S-4 with the U.S. Securities and Exchange Commission, which will
contain all relevant information about the transaction. The transaction
is expected to close before year-end.

Except for historical information provided in this discussion and
analysis, the discussion includes forward looking statements, including
the impact on FASB 141 and 142; the expected closing of the HEAR-Helix
transaction by year-end; the Companys goal of establishing a nationwide
center network; plans for the full operation of the national call center;
expectation concerning the effect of cost control measures; funds
available under the line of credit, credit commitment; current cash,
investment securities and revenues from operations sufficient to support
the Companys operational needs; the Companys belief concerning the
effect on its financial condition or operations of changes in benefits
announced by some insurance companies and the loss of any single contract.
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 ability of
the Company and Helix to successfully consummate the combination;
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 annual
report on Form 10-K for the fiscal year December 29, 2000 filed with the
Securities and Exchange Commission.

13



---



Item 3. Quantitative and Qualitative Disclosure About Market Risk

None

Part II  Other Information

Item 2. Changes in Securities and Use of Proceeds

During the six months ended June 30, 2001, 610 shares of the 1998 Convertible
Preferred Stock and 65 shares of the Series I Convertible Preferred Stock
plus accrued dividends of $132,891 and $40,503, respectively, were converted
into 672,310 and 494,148 shares of the Companys Common Stock. The shares of
1998 Convertible Preferred Stock and Series I Convertible Preferred Stock were
initially issued to certain accredited investors pursuant to the exemption
from registration contained in Section 4(2) of the Securities Act of 1933 and
Rule 506 of Regulation D. The shares of Common Stock issued upon the
conversion were also issued pursuant to Section 4(2) of the Securities Act of
1933.

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its annual meeting of stockholders on June 25, 2001. At that
meeting, the stockholders were asked to consider and act on the election of
directors. The following persons were elected as directors for terms expiring
in 2002:

|                        |  |     |           |          |  |           |         |             |  |  |   |  |  |  |           | 
|----------------------- |  | --- | --------- | -------- |  | --------- | ------- | ----------- |  |  | - |  |  |  | --------- | 
|                        |  |     |           |          |  | Against/  |         | Broker     
|Nominee                 |  | For |           | Withheld |  | Non-votes |         | Abstentions
|Paul A. Brown, M.D.     |  |     | 9,865,286 |          |  |           | 164,961 |             |  |  | 0 |  |  |  | 3,086,578 | 
|                       
|                       
|                       
|                       
|Stephen J. Hansbrough   |  |     | 9,865,891 |          |  |           | 164,356 |             |  |  | 0 |  |  |  | 3,086,578 | 
|                       
|                       
|                       
|                       
|Thomas W. Archibald     |  |     | 9,865,891 |          |  |           | 164,356 |             |  |  | 0 |  |  |  | 3,086,578 | 
|                       
|                       
|                       
|                       
|David J. McLachlan      |  |     | 9,865,891 |          |  |           | 164,356 |             |  |  | 0 |  |  |  | 3,086,578 | 
|                       
|                       
|                       
|                       
|Joseph L. Gitterman III |  |     | 9,865,831 |          |  |           | 164,416 |             |  |  | 0 |  |  |  | 3,086,578 | 

Item 5. Other Information

On April 1, 2001 the Company entered into a Stock Purchase Agreement with The
Kriegsman Group, pursuant to which the Company sold 200,000 shares of Common
Stock, par value $.10 per share, for $2.0625 per share, and received a
secured, nonrecourse promissory note for the principal amount of $412,500.

The principal amount of the note and accrued interest is payable on April 1,
2006. The note bears interest at the prime rate published by the Wall Street
Journal adjusted annually. At June 30, 2001 the interest rate on the note is
8%.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

|    |  |                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Restated Certificate of Incorporation of HEARx Ltd.,
including certain certificates of designations, preferences and
rights of certain preferred stock of the Company. [3] 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.

14



---



|    |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|    | 3.2  |  | Amendment to Restated Certificate of Incorporation. [3.1A].
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.                                                                                                                                                               
|   
|   
|   
|   
|    | 3.3  |  | Certificate of Designations, Preferences and Rights of the
Companys 1998 Convertible Preferred Stock. [3] 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.                                                                                                                              
|   
|   
|   
|   
|    | 3.4  |  | By-Laws of HEARx Ltd. [3.4]. Filed as an exhibit to the
Companys Annual Report on Form 10-K for the fiscal year ended
12/31/99 as the exhibit number indicated in brackets, and
incorporated herein by reference.                                                                                                                                                                                                 
|   
|   
|   
|   
|    | 3.5  |  | Certificate of Designations, Preferences and Rights of the
Companys 1999 Series H Junior Participating Preferred Stock. [4]
Filed as an exhibit to the Companys Current Report on Form 8-K,
filed December 17, 1999, as the exhibit number indicated in
brackets, and incorporated herein by reference.                                                                                                          
|   
|   
|   
|   
|    | 3.6  |  | Certificate of Designations, Preferences and Rights of the
Companys 2000 Series I Convertible Preferred Stock. [3] Filed as
an exhibit to the Companys Current Report on Form 8-K, filed May 9,
2000, as the exhibit number indicated in brackets, and incorporated
herein by reference                                                                                                                          
|   
|   
|   
|   
|    | 4.1  |  | Form of Rights Agreement, dated December 14, 1999, between
HEARx and the Rights Agent, which includes the Certificate of
Designations, Preferences and Rights of the Companys 1999 Series H
Junior Participating Preferred Stock. [4] Filed as an exhibit to the
Companys Current Report on Form 8-K, dated December 17, 1999, as
the exhibit number indicated in brackets, and incorporated herein by
reference.
|   
|   
|   
|   
|    | 10.1 |  | Letter of Intent dated April 23, 2001 by and between HEARx
Ltd and Siemens Hearing Instruments, Inc. [10.1] Filed as an exhibit
to the Companys Quarterly Report on Form 10-Q for the period ended
March 31, 2001, as the exhibit number indicated in brackets, and
incorporated herein by reference.                                                                                                             
|   
|(b) |      |  | Reports on Form 8-K:                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |      |  | A current report on Form 8-K, dated May 2, 2001, was filed with the
Securities and Exchange Commission on May 3, 2001, in which the
Company reported a distributor relationship commitment and a $7.5
million line of credit.                                                                                                                                                                                      
|   
|    |      |  | A current report on Form 8-K, dated May 23, 2001, was filed with the
Securities and Exchange Commission on May 23, 2001, in which the
Company reported it signed a letter of intent to consolidate
operations with Helix Hearing Care of America Corp.                                                                                                                                                             

15



---



| |  |                                                                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|
| |  | A current report on Form 8-K, dated June 25, 2001, was filed with the
Securities and Exchange Commission on June 25, 2001, in which the
Company reported it secured a financing commitment up to $70 million
from Seimens Hearing Instruments, Inc.

16



---



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:  August 14, 2001 |  |  |  | By: |  | s/Stephen J. Hansbrough

Stephen J. Hansbrough
President and
Chief Operating Officer
|                      
|Date:  August 14, 2001 |  |  |  | By: |  | s/James W. Peklenk
James W. Peklenk
Vice President and
Chief Financial Officer      

17