##### Table of Contents



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 27, 2009
 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
    
    (I.R.S. EmployerIncorporation 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 þ 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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes o No þ
 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 definition of large
accelerated filer, and 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 filero
    
    Smaller reporting Company þ
 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
August 7, 2009, 44,339,819 shares of the Registrants
Common Stock and 497,145 exchangeable
shares of HEARx Canada, Inc. were outstanding.




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##### 



INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets
June 27, 2009 and December 27, 2008
    
    
    3Consolidated Statements of Operations
Six months ended June 27, 2009 and June 28, 2008
    
    
    4Consolidated Statements of Operations
Three months ended June 27, 2009 and June 28, 2008
    
    
    5Consolidated Statements of Cash Flows
Six months ended June 27, 2009 and June 28, 2008
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    41PART II. OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 6. Exhibits
    
    
    42Signatures
    
    
    43Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 31.1Exhibit 31.2Exhibit 32




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##### Table of Contents



Part I  Financial Information
 
 Item 1.
    
    Financial Statements
 HearUSA, Inc.
 
 Consolidated Balance Sheets
 (unaudited)
 June 27,
    
    
    December 27,2009
    
    
    2008(Dollars in thousands, except forpar values)ASSETS (Notes 2 and 4)Current assetsCash and cash equivalents
    
    $
    7,567
    
    
    $
    3,553Short-term marketable securities (Note 7)
    
    
    9,402
    
    
    
    Accounts and notes receivable, less allowance for
doubtful accounts of $601 and $506
    
    
    5,243
    
    
    
    7,371Inventories
    
    
    1,546
    
    
    
    1,682Prepaid expenses and other
    
    
    699
    
    
    
    502Total current assets
    
    
    24,457
    
    
    
    13,108Property and equipment, net (Note 4)
    
    
    4,125
    
    
    
    4,876Goodwill (Notes 2,3 and 4)
    
    
    51,309
    
    
    
    65,953Intangible assets, net (Notes 2 and 4)
    
    
    13,173
    
    
    
    15,630Deposits and other
    
    
    790
    
    
    
    810Restricted cash and cash equivalents
    
    
    224
    
    
    
    224Total Assets
    
    $
    94,078
    
    
    $
    100,601LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    6,710
    
    
    $
    5,011Accrued expenses
    
    
    4,102
    
    
    
    3,208Accrued salaries and other compensation
    
    
    3,387
    
    
    
    3,713Current maturities of long-term debt
    
    
    6,890
    
    
    
    6,915Income taxes payable
    
    
    1,682
    
    
    
    Dividends payable
    
    
    35
    
    
    
    34Total current liabilities
    
    
    22,806
    
    
    
    18,881Long-term debt (Notes 2,4 and 7)
    
    
    38,809
    
    
    
    49,099Deferred income taxes
    
    
    6,875
    
    
    
    7,284Total long-term liabilities
    
    
    45,684
    
    
    
    56,383Commitments and contingenciesStockholders equity (Note 8)Preferred stock (aggregate liquidation preference $2,330, $1 par,
7,500,000 shares authorized)Series H Junior Participating (none outstanding)
    
    
    
    
    
    
    Series J (233 shares outstanding)
    
    
    
    
    
    
    Total preferred stock
    
    
    
    
    
    
    Common stock: $.10 par; 75,000,000 shares authorized 44,861,290
and 44,828,384 shares issued, respectively
    
    
    4,486
    
    
    
    4,483Additional paid-in capital
    
    
    137,333
    
    
    
    136,924Accumulated deficit
    
    
    (115,519
    )
    
    
    (116,360
    )Accumulated other comprehensive income
    
    
    
    
    
    
    1,249Treasury stock, at cost: 523,662 common shares
    
    
    (2,485
    )
    
    
    (2,485
    )Noncontrolling interest
    
    
    1,773
    
    
    
    1,526Total Stockholders equity
    
    
    25,588
    
    
    
    25,337Total Liabilities and Stockholders Equity
    
    $
    94,078
    
    
    $
    100,601
 See accompanying notes to consolidated financial statements
  3




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HearUSA, Inc.
 
 Consolidated Statements of Operations
 Six months ended June 27, 2009 and June 28, 2008
 (unaudited)
 June 27,
    
    
    June 28,2009
    
    
    2008(Dollars in thousands, except pershare amounts)Net revenuesHearing aids and other products
    
    $
    41,560
    
    
    $
    46,524Services
    
    
    3,829
    
    
    
    3,576Total net revenues
    
    
    45,389
    
    
    
    50,100Operating costs and expensesHearing aids and other products (Note 4)
    
    
    10,452
    
    
    
    12,698Services
    
    
    889
    
    
    
    1,056Total cost of products sold and services excluding depreciation and amortization
    
    
    11,341
    
    
    
    13,754Center operating expenses
    
    
    22,690
    
    
    
    25,456General and administrative expenses (Note 8)
    
    
    7,675
    
    
    
    8,348Depreciation and amortization
    
    
    1,138
    
    
    
    1,023Total operating costs and expenses
    
    
    42,844
    
    
    
    48,581Income from operations
    
    
    2,545
    
    
    
    1,519Non-operating income (expenses)Gain on foreign exchange
    
    
    375
    
    
    
    Interest income
    
    
    
    
    
    
    22Interest expense (Notes 3, 4 and 5)
    
    
    (2,589
    )
    
    
    (2,449
    )Income (loss) from continuing operations before income tax expense
    
    
    331
    
    
    
    (908
    )Income tax expense
    
    
    (420
    )
    
    
    (406
    )Loss from continuing operations
    
    
    (89
    )
    
    
    (1,314
    )Discontinued operations (Note 2)Income from
discontinued operations, net of income tax expense (benefit) of
$(261) and $113
    
    
    1,159
    
    
    
    1,637Gain on sale of discontinued operations
    
    
    1,632
    
    
    
    Income tax expense on sale of discontinued operations
    
    
    (1,546
    )
    
    
    Income from discontinued operations
    
    
    1,245
    
    
    
    1,637Net income
    
    
    1,156
    
    
    
    323Net income attributable to noncontrolling interest
    
    
    (247
    )
    
    
    (692
    )Net
income (loss) attributable to controlling interest
    
    
    909
    
    
    
    (369
    )Dividends on preferred stock
    
    
    (68
    )
    
    
    (69
    )Net
income (loss) attributable to common stockholders
    
    $
    841
    
    
    $
    (438
    )Loss from
continuing operations attributable to common stockholders per common share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.04
    )Net
income (loss) attributable to common stockholders per common share  basic
    
    $
    0.02
    
    
    $
    (0.01
    )Net
income (loss) attributable to common stockholders per common share  diluted
    
    $
    0.02
    
    
    $
    (0.01
    )Weighted average number of shares of common stock outstanding  basic
    
    
    44,837
    
    
    
    38,547Weighted average number of shares of common stock outstanding  diluted
    
    
    44,837
    
    
    
    38,547
 See accompanying notes to consolidated financial statements
  4




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HearUSA, Inc.
 
 Consolidated Statements of Operations
 Three months ended June 27, 2009 and June 28, 2008
 (unaudited)
 June 27,
    
    
    June 28,2009
    
    
    2008(Dollars in thousands, except pershare amounts)Net revenuesHearing aids and other products
    
    $
    20,653
    
    
    $
    23,605Services
    
    
    2,014
    
    
    
    1,735Total net revenues
    
    
    22,667
    
    
    
    25,340Operating costs and expensesHearing aids and other products (Note 4)
    
    
    5,072
    
    
    
    6,627Services
    
    
    388
    
    
    
    551Total cost of products sold and services excluding depreciation and amortization
    
    
    5,460
    
    
    
    7,178Center operating expenses
    
    
    10,908
    
    
    
    12,933General and administrative expenses (Note 8)
    
    
    3,661
    
    
    
    3,617Depreciation and amortization
    
    
    588
    
    
    
    518Total operating costs and expenses
    
    
    20,617
    
    
    
    24,246Income from operations
    
    
    2,050
    
    
    
    1,094Non-operating income (expenses)Gain on foreign exchange
    
    
    375
    
    
    
    Interest income
    
    
    
    
    
    
    6Interest expense (Notes 3, 4 and 5)
    
    
    (1,252
    )
    
    
    (1,232
    )Income (loss) from continuing operations before income tax expense and
discontinued operations
    
    
    1,173
    
    
    
    (132
    )Income tax expense
    
    
    (210
    )
    
    
    (206
    )Income (loss) from continuing operations
    
    
    963
    
    
    
    (338
    )Discontinued operations (Note 2)Income from
discontinued operations, net of income tax expense (benefit) of
$(270) and $113
    
    
    250
    
    
    
    974Gain on sale of discontinued operations
    
    
    1,632
    
    
    
    Income tax expense on gain on sale of discontinued operations
    
    
    (1,546
    )
    
    
    Income from discontinued operations
    
    
    336
    
    
    
    974Net income
    
    
    1,299
    
    
    
    636Net income attributable to noncontrolling interest
    
    
    (131
    )
    
    
    (356
    )Net
income attributable to controlling interest
    
    
    1,168
    
    
    
    280Dividends on preferred stock
    
    
    (35
    )
    
    
    (35
    )Net
income attributable to common stockholders
    
    $
    1,133
    
    
    $
    245Income
(loss) from continuing operations attributable to common stockholders per common share  basic
    
    $
    0.02
    
    
    $
    (0.02
    )Income
(loss) from continuing operations attributable to common stockholders per common share  diluted
    
    $
    0.02
    
    
    $
    (0.02
    )Net
income attributable to common stockholders  per common share  basic
    
    $
    0.03
    
    
    $
    0.01Net income attributable to common stockholders per common share  diluted
    
    $
    0.03
    
    
    $
    0.01Weighted average number of shares of common stock outstanding  basic
    
    
    44,837
    
    
    
    38,562Weighted average number of shares of common stock outstanding  diluted
    
    
    45,340
    
    
    
    38,562
 See accompanying notes to consolidated financial statements
  5




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HearUSA, Inc.
 
 Consolidated Statements of Cash flows
 (unaudited)
 June 27,
    
    
    June 28,2009
    
    
    2008(Dollars in thousands)Cash flows from operating activitiesNet income
    
    $
    1,156
    
    
    $
    323Adjustments to reconcile net income to net cash provided by operating activities:Debt discount amortization
    
    
    
    
    
    
    177Depreciation and amortization
    
    
    1,272
    
    
    
    1,288Gain on
foreign exchange
    
    
    (375
    )
    
    
    Gain on sale
of discontinued operations, net of tax expense
    
    
    (86
    )
    
    
    Employee and director stock-based compensation
    
    
    398
    
    
    
    384Provision for doubtful accounts
    
    
    259
    
    
    
    271Deferred income tax expense
    
    
    420
    
    
    
    519Interest on discounted notes payable
    
    
    172
    
    
    
    263Principal payments on long-term debt made through rebate credits
    
    
    (1,660
    )
    
    
    (1,976
    )Other
    
    
    14
    
    
    
    64(Increase) decrease in:Accounts and receivable
    
    
    (16
    )
    
    
    (572
    )Inventories
    
    
    (15
    )
    
    
    (43
    )Prepaid expenses and other
    
    
    (28
    )
    
    
    (189
    )Increase (decrease) in:Accounts payable and accrued expenses
    
    
    2,641
    
    
    
    3,325Accrued salaries and other compensation
    
    
    (255
    )
    
    
    491Net cash provided by operating activities
    
    
    3,897
    
    
    
    4,325Cash flows from investing activitiesPurchase of property and equipment
    
    
    (394
    )
    
    
    (807
    )Purchase of
intangible assets
    
    
    (157
    )
    
    
    Net proceeds from sale of Canada assets
    
    
    22,046
    
    
    
    Net purchases of short-term marketable securities
    
    
    (9,402
    )
    
    
    Business acquisitions
    
    
    (1,313
    )
    
    
    (2,745
    )Net cash used in investing activities
    
    
    10,780
    
    
    
    (3,552
    )Cash flows from financing activitiesProceeds from issuance of long-term debt
    
    
    
    
    
    
    3,311Principal payments on long-term debt
    
    
    (2,406
    )
    
    
    (2,406
    )Principal payments on Siemens debt
    
    
    (8,097
    )
    
    
    Principal payments on subordinated notes
    
    
    
    
    
    
    (880
    )Proceeds from the exercise of employee options
    
    
    
    
    
    
    146Dividends paid on preferred stock
    
    
    (68
    )
    
    
    (69
    )Dividends paid to noncontrolling interest
    
    
    
    
    
    
    (759
    )Net cash used in financing activities
    
    
    (10,571
    )
    
    
    (657
    )Effects of exchange rate changes on cash
    
    
    (92
    )
    
    
    9Net (decrease) increase in cash and cash equivalents
    
    
    4,014
    
    
    
    125Cash and cash equivalents at the beginning of period
    
    
    3,553
    
    
    
    3,369Cash and cash equivalents at the end of period
    
    $
    7,567
    
    
    $
    3,494Supplemental disclosure of cash flows information:Cash paid for interest
    
    $
    295
    
    
    $
    689Supplemental schedule of non-cash investing and financing activities:Principal payments on long-term debt made through rebate credits
    
    $
    (1,660
    )
    
    $
    (1,976
    )Issuance of notes payable in exchange for business acquisitions
    
    $
    1,217
    
    
    $
    2,328Issuance of capital lease in exchange for property and equipment
    
    $
    272
    
    
    $
    22Conversion of accounts payable to notes payable
    
    $
    
    
    
    $
    2,843
 See accompanying notes to consolidated financial statements
  6




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




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Comprehensive income (loss)
   Six Months Ended
    
    
    Three Months EndedJune 27,
    
    
    June  28,
    
    
    June 27,
    
    
    June  28,Dollars in thousands
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net income for the period
    
    $
    1,156
    
    
    $
    323
    
    
    $
    1,299
    
    
    $
    636Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    89
    
    
    
    (136
    )
    
    
    319
    
    
    
    (125
    )Comprehensive income for the period
    
    $
    1,245
    
    
    $
    187
    
    
    $
    1,618
    
    
    $
    511
 2. Discontinued Operations
    8




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9




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For the Six Months Ended
    
    
    For the Three Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    4,559
    
    
    $
    8,715
    
    
    $
    1,133
    
    
    $
    4,785Cost and expenses
    
    
    3,661
    
    
    
    6,965
    
    
    
    1,153
    
    
    
    3,698Income (loss) before provision of income taxes
    
    $
    898
    
    
    $
    1,750
    
    
    $
    (20
    )
    
    $
    1,087Income tax expense (benefit)
    
    
    (261
    )
    
    
    113
    
    
    
    (270
    )
    
    
    113Income from discontinued operations
    
    $
    1,159
    
    
    $
    1,637
    
    
    $
    250
    
    
    $
    974Gain on sale of discontinued operations, net
of applicable tax of $1,546
    
    $
    86
    
    
    $
    
    
    
    $
    86
    
    
    $
    Income from discontinued operations  basic
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.03Income from discontinued operations  diluted
    
    $
    0.03
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.02
   Current Assets
    
    $
    1,918Property and equipment
    
    
    473Goodwill
    
    
    16,810Intangible assets, net
    
    
    2,732Current liabilities
    
    
    (105
    )Foreign currency translation adjustment
    
    
    (1,338
    )Net assets disposed
    
    $
    20,490
 3. Business Acquisitions and Goodwill Impairment
    10




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11




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
    
    The Companys stock is thinly traded;
    
    The decline in the Companys stock price during 2008 is not directly correlated to a
change in the overall operating performance of the Company; and
    
    Previously unseen pressures are in place given the global financial and economic crisis.
   4. Long-term Debt
  June 27,
    
    
    December 27,Dollars in thousands
    
    2009
    
    
    2008Credit Facility payable to SiemensTranche B
    
    $
    4,539
    
    
    $
    5,552Tranche C
    
    
    32,354
    
    
    
    41,109Total Credit Facility payable to Siemens
    
    
    36,893
    
    
    
    46,661Notes payable from business acquisitions and other
    
    
    8,806
    
    
    
    9,35345,699
    
    
    
    56,014Less current maturities
    
    
    6,890
    
    
    
    6,915$
    38,809
    
    
    $
    49,099
   2010
    
    $
    6,8902011
    
    
    5,1972012
    
    
    4,1502013
    
    
    2,7942014 and thereafter
    
    
    26,668
  12




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Amended Credit Agreement
     13




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Amended Supply Agreement
     Six Months Ended
    
    
    Three Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,Dollars in thousands
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Portion applied against quarterly principal payments
    
    $
    1,660
    
    
    $
    1,976
    
    
    $
    825
    
    
    $
    985Portion applied against quarterly interest payments
    
    
    2,093
    
    
    
    1,388
    
    
    
    1,008
    
    
    
    690$
    3,753
    
    
    $
    3,364
    
    
    $
    1,833
    
    
    $
    1,675
  Amended Investor Rights Agreement
  
    
    Resale registration rights for the 6.4 million shares of common stock acquired by
Siemens on December 23, 2008 under the Siemens Purchase Agreement. The Company completed
the registration of these shares for resale in the second quarter of 2009.
 
    
    Certain rights of first refusal in the event the Company chooses to issue equity or if
there is a change of control transaction involving a person in the hearing aid industry
for a period of 18 months following the December 23, 2008 amendment. Thereafter Siemens
will have a more limited right of first refusal and preemptive rights for the term of the
agreement.
 
    
    The rights to have a representative of Siemens attend meetings of the Board of
Directors of the Company as a nonvoting observer.
  Notes payable from business acquisitions and other
   14




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5. Subordinated Notes and Warrants
   6. Noncontrolling Interest
    Amount(thousands)Balance at December 28, 2008
    
    $
    1,526Joint venture earnings allocable to joint venture partners
    
    
    247Dividends to joint venture partners
    
    
    Balance at June 27, 2009
    
    $
    1,773
 7. 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.
  15




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Fair Value Measurements at Reporting Date UsingQuoted Price inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant other
    
    
    UnobservableTotal as of
    
    
    Assets
    
    
    Observable Inputs
    
    
    InputsDescription
    
    June 27, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Short-term
marketable
securities
    
    $
    9,402
    
    
    $
    9,402
    
    
    $
    
    
    
    $
    
    8. Stock-based Compensation
   16




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Six Months EndedJune 27, 2009Risk free interest rate
    
    
    2.78
    %Expected life in years
    
    
    10Expected volatility
    
    
    85
    %Weighted average exercise price
    
    $
    0.53
   Stock-based payment award activity
  WeightedAverageRemainingWeighted
    
    
    ContractualAverage
    
    
    Term
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    (in years)
    
    
    Intrinsic ValueOutstanding at December 27, 2008
    
    
    5,356
    
    
    $
    1.30
    
    
    
    
    
    
    
    Granted
    
    
    800
    
    
    
    0.53Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited/expired/cancelled
    
    
    (180
    )
    
    
    1.81
    
    
    
    
    
    
    
    Outstanding at June 27, 2009
    
    
    5,976
    
    
    $
    1.18
    
    
    
    6.16
    
    
    $
    923Exercisable at June 27, 2009
    
    
    3,808
    
    
    $
    1.17
    
    
    
    4.49
    
    
    $
    602
  17




---



##### Table of Contents



WeightedAverageGrant-DateShares
    
    
    Fair(in thousands)
    
    
    ValueNon-vested at December 27, 2008
    
    
    1,552
    
    
    $
    1.59Granted
    
    
    800
    
    
    $
    0.53Vested
    
    
    (124
    )
    
    $
    1.66Forfeited unvested
    
    
    (60
    )
    
    $
    1.70Non-vested at June 27, 2009
    
    
    2,168
    
    
    $
    1.19
 Restricted stock units
   Service-based
    
    
    Performance-basedRestricted Stock Units (1)
    
    
    Restricted Stock Units (1)Outstanding at December 27, 2008
    
    
    136,500
    
    
    
    230,333Awarded
    
    
    
    
    
    
    Vested
    
    
    (45,500
    )
    
    
    Forfeited
    
    
    
    
    
    
    (230,333
    )Outstanding at June 27, 2009
    
    
    91,000
    
    
    
    
 (1)
    
    Each stock unit represents the fair market value of one share of common stock.   18




---



##### Table of Contents



9. Segments
   Dollars in thousands
    
    Centers
    
    
    E-commerce
    
    
    Network
    
    
    Corporate
    
    
    TotalHearing aids and other products revenues6 months ended June 27, 2009
    
    $
    41,527
    
    
    $
    33
    
    
    
    
    
    
    
    
    
    
    $
    41,5606 months ended June 28, 2008
    
    $
    46,468
    
    
    $
    56
    
    
    
    
    
    
    
    
    
    
    $
    46,524Service revenues6 months ended June 27, 2009
    
    $
    2,480
    
    
    $
    
    
    
    $
    1,167
    
    
    
    182
    
    
    $
    3,8296 months ended June 28, 2008
    
    $
    2,501
    
    
    $
    
    
    
    $
    1,075
    
    
    
    
    
    
    $
    3,576Income (loss) from operations6 months ended June 27, 2009
    
    $
    10,258
    
    
    $
    (45
    )
    
    $
    547
    
    
    $
    (8,215
    )
    
    $
    2,5456 months ended June 28, 2008
    
    $
    9,768
    
    
    $
    (91
    )
    
    $
    845
    
    
    $
    (8,616
    )
    
    $
    1,9066 months ended June 27, 2009Depreciation and
amortization
    
    $
    416
    
    
    
    
    
    
    $
    
    
    
    $
    722
    
    
    $
    1,138Total assets
    
    $
    66,314
    
    
    
    
    
    
    $
    916
    
    
    $
    26,848
    
    
    $
    94,078Capital expenditures
    
    $
    394
    
    
    
    
    
    
    
    
    
    
    $
    135
    
    
    $
    5296 months ended June 28, 2008Depreciation and
amortization
    
    $
    368
    
    
    
    
    
    
    $
    
    
    
    $
    655
    
    
    $
    1,023Total assets
    
    $
    85,944
    
    
    
    
    
    
    $
    919
    
    
    $
    18,252
    
    
    $
    105,115Capital expenditures
    
    $
    757
    
    
    
    
    
    
    
    
    
    
    $
    50
    
    
    $
    807
  Six months endedJune 27,
    
    
    June 28,2009
    
    
    2008Hearing aid revenues
    
    
    96.9
    %
    
    
    97.6
    %Other products revenues
    
    
    3.1
    %
    
    
    2.4
    %
  Six months endedJune 27,
    
    
    June 28,2009
    
    
    2008Hearing aid repairs
    
    
    44.5
    %
    
    
    45.7
    %Testing and other income
    
    
    55.5
    %
    
    
    54.3
    %
  19




---



##### Table of Contents



Six months endedJune 27,
    
    
    June 28,Dollars in thousands
    
    2009
    
    
    2008Contract
service revenue
    
    $
    (182
    )
    
    
    General and administrative expense
    
    
    7,675
    
    
    $
    7,961Corporate depreciation and amortization
    
    
    722
    
    
    
    655Corporate loss from operations
    
    $
    8,215
    
    
    $
    8,616
 10. Subsequent Event
     (a)
    
    All Company owned centers and network providers in Florida and New Jersey by
the end of calendar 2009
 (b)
    
    Company network providers in Illinois, Michigan, Pennsylvania, Indiana,
Massachusetts, Arizona, Wisconsin, Washington, California, Georgia, Maryland, North
Carolina, Virginia, Missouri, New York, Texas and Ohio by the end of calendar 2010
 (c)
    
    A combination of Company owned centers and network providers in all fifty U.S.
States, the District of Columbia, and the five U.S. Territories by the end of 2011.
   20




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RECENT ACCOUNTING PRONOUNCEMENTS
      21




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22




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 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. 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; the expectation that the Companys cost saving measures will achieve a
total cost savings of more than $8.0 million on an annualized basis; and its expectation concerning
the proceeds from the Canadian sale transaction. 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 those risks
described in this report and in the Companys annual report on Form 10-K for fiscal 2008 filed with
the Securities and Exchange Commission.
 RECENT DEVELOPMENTS
   RESULTS OF OPERATIONS
 For the three months ended June 27, 2009 compared to the three months ended June 28, 2008
 Revenues
 Dollars in thousands
    
    2009
    
    
    2008
    
    
    Change
    
    
    % ChangeHearing aids and other products
    
    $
    20,653
    
    
    $
    23,605
    
    
    $
    (2,952
    )
    
    
    (12.5
    )%Services
    
    
    2,014
    
    
    
    1,735
    
    
    
    279
    
    
    
    16.1
    %Total net revenues
    
    $
    22,667
    
    
    $
    25,340
    
    
    $
    (2,673
    )
    
    
    (10.5
    )%
 2009
    
    
    2008
    
    
    Change
    
    
    % ChangeRevenues from centers acquired in 2008 (1)
    
    $
    558
    
    
    $
    
    
    
    $
    558
    
    
    
    2.2
    %Revenues from centers acquired in 2009
    
    
    393
    
    
    
    
    
    
    
    393
    
    
    
    1.6
    %Revenues from acquired centers
    
    
    951
    
    
    
    
    
    
    
    951
    
    
    
    3.8
    %Revenues from comparable centers (2)
    
    
    21,534
    
    
    
    25,340
    
    
    
    (3,806
    )
    
    
    (15.0
    )%Revenues
from contract services (3)
    
    
    182
    
    
    
    
    
    
    
    182
    
    
    
    0.7
    %Total net revenues
    
    $
    22,667
    
    
    $
    25,340
    
    
    $
    (2,673
    )
    
    
    (10.5
    )%
 (1)
    
    Represents that portion of revenues from the 2008 acquired centers recognized for those
acquisitions that had less than one full year of revenues recorded in 2008 due to the
timing of their acquisition.(2)
    
    Also includes revenues from the network business segment.(3)
    
    Represents fees earned
pursuant to the support agreement entered into upon the sale of our
Canadian operations.  23




---



##### Table of Contents



Cost of Products Sold and Services
 Dollars in thousands
    
    2009
    
    
    2008
    
    
    Change
    
    
    %Hearing aids and other products
    
    $
    5,072
    
    
    $
    6,627
    
    
    $
    (1,555
    )
    
    
    (23.5
    )%Services
    
    
    388
    
    
    
    551
    
    
    
    (163
    )
    
    
    (29.6
    )%Total cost of products sold and services
    
    $
    5,460
    
    
    $
    7,178
    
    
    $
    (1,718
    )
    
    
    (23.9
    )%Percent of total net revenues
    
    
    24.1
    %
    
    
    28.3
    %
    
    
    (4.2
    )%
    
    
    (15.0
    )%
   2009
    
    
    2008
    
    
    Change
    
    
    %Rebates offsetting base required payments on Tranche C
    
    $
    500
    
    
    $
    500
    
    
    $
    
    
    
    
    Volume rebates used to reduce Tranche C principal
    
    
    156
    
    
    
    312
    
    
    
    (156
    )
    
    
    (50.0
    )%Rebates
offsetting required principal payments of $65 per Siemens unit
from acquired centers on Tranche B
    
    
    169
    
    
    
    173
    
    
    
    (4
    )
    
    
    (2.3
    )%Rebates offsetting interest on Tranches B and C
    
    
    1,008
    
    
    
    690
    
    
    
    318
    
    
    
    46.1
    %Total rebate credits
    
    $
    1,833
    
    
    $
    1,675
    
    
    $
    159
    
    
    
    9.5
    %Percent of total net revenues
    
    
    8.1
    %
    
    
    6.6
    %
    
    
    1.5
    %
    
    
    22.7
    %
   24




---



##### Table of Contents



Expenses
  Dollars in thousands
    
    2009
    
    
    2008
    
    
    Change
    
    
    %Center operating expenses
    
    $
    10,908
    
    
    $
    12,933
    
    
    $
    (2,025
    )
    
    
    (15.7
    )%Percent of total net revenues
    
    
    48.1
    %
    
    
    51.0
    %
    
    
    (2.9
    )%
    
    
    (5.7
    )%General and administrative expenses
    
    $
    3,661
    
    
    $
    3,617
    
    
    $
    44
    
    
    
    1.2
    %Percent of total net revenues
    
    
    16.2
    %
    
    
    14.3
    %
    
    
    1.9
    %
    
    
    13.3
    %Depreciation and amortization
    
    $
    588
    
    
    $
    518
    
    
    $
    70
    
    
    
    13.5
    %Percent of total net revenues
    
    
    2.6
    %
    
    
    2.0
    %
    
    
    0.6
    %
    
    
    30.0
    %
     Gain on Foreign Exchange
  Interest Expense
 Dollars in thousands
    
    2009
    
    
    2008
    
    
    Change
    
    
    %Notes payable from business acquisitions and others (1)
    
    $
    244
    
    
    $
    221
    
    
    $
    23
    
    
    
    10.4
    %Siemens Tranches B and C  interest forgiven (2)
    
    
    1,008
    
    
    
    690
    
    
    
    318
    
    
    
    46.1
    %Siemens Tranche D
    
    
    
    
    
    
    234
    
    
    
    (234
    )
    
    
    (100.0
    )%2005 Subordinated Notes (3)
    
    
    
    
    
    
    87
    
    
    
    (87
    )
    
    
    (100.0
    )%Total interest expense
    
    $
    1,252
    
    
    $
    1,232
    
    
    $
    20
    
    
    
    1.6
    %
 2009
    
    
    2008
    
    
    Change
    
    
    %Total cash interest expense (4)
    
    $
    165
    
    
    $
    367
    
    
    $
    (202
    )
    
    
    (55.0
    )%Total non-cash interest expense (5)
    
    
    1,087
    
    
    
    865
    
    
    
    222
    
    
    
    25.7
    %Total interest expense
    
    $
    1,252
    
    
    $
    1,232
    
    
    $
    20
    
    
    
    1.6
    %
 (1)
    
    Includes $79,000 and $129,000 in the second quarter of 2009 and 2008, respectively, of
non-cash interest expense related to recording of notes at their present value by discounting
future payments to market rate of interest (see Note 4  Long-term Debt, Notes to Consolidated
Financial Statements included herein).  25




---



##### Table of Contents



(2)
    
    The interest expense on Tranches B and C is forgiven by Siemens as long as the minimum
purchase requirements are met a corresponding rebate credit is recorded as a reduction of the
cost of products sold (see Note 4  Long-term Debt, Notes to Consolidated Financial Statements
included herein and Liquidity and Capital Resources, below).(3)
    
    Includes $40,000 in 2008 of non-cash debt discount amortization (see Note 5  Subordinated
Notes and Warrants, Notes to Consolidated Financial Statements included herein).(4)
    
    Represents the sum of the cash interest portion paid on the notes payable for business
acquisitions and others and the cash interest paid to Siemens on the Siemens Trance D loans(5)
    
    Represents 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,
debt discount amortization on the 2005 Subordinated Notes and interest on Siemens Tranches B
and C offset by rebates.  Income Taxes
    Net Income attributable to noncontrolling interest
  Discontinued Operations
     26




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##### Table of Contents



For the six months ended June 27, 2009 compared to the six months ended June 28, 2008
 Revenues
 Dollars in thousands
    
    2009
    
    
    2008
    
    
    Change
    
    
    % ChangeHearing aids and other products
    
    $
    41,560
    
    
    $
    46,524
    
    
    $
    (4,964
    )
    
    
    (10.7
    )%Services
    
    
    3,829
    
    
    
    3,576
    
    
    
    253
    
    
    
    7.1
    %Total net revenues
    
    $
    45,389
    
    
    $
    50,100
    
    
    $
    (4,711
    )
    
    
    (9.4
    )%
 2009
    
    
    2008
    
    
    Change
    
    
    % ChangeRevenues from centers acquired in 2008 (1)
    
    $
    1,686
    
    
    $
    
    
    
    $
    1,686
    
    
    
    3.4
    %Revenues from centers acquired in 2009
    
    
    628
    
    
    
    
    
    
    
    628
    
    
    
    1.3
    %Revenues from acquired centers
    
    
    2,314
    
    
    
    
    
    
    
    2,314
    
    
    
    4.6
    %Revenues from comparable centers (2)
    
    
    42,893
    
    
    
    50,100
    
    
    
    (7,207
    )
    
    
    (14.4
    )%Revenues
from contract services (3)
    
    
    182
    
    
    
    
    
    
    
    182
    
    
    
    0.4
    %Total net revenues
    
    $
    45,389
    
    
    $
    50,100
    
    
    $
    (4,711
    )
    
    
    (9.4
    )%
 (1)
    
    Represents that portion of revenues from the 2008 acquired centers recognized for those
acquisitions that had less than one full year of revenues recorded in 2008 due to the
timing of their acquisition.(2)
    
    Also includes revenues from the network business segment.(3)
    
    Represents fees earned
pursuant to the support agreement entered into upon the sale of our
Canadian operations.  Cost of Products Sold and Services
  Dollars in thousands
    
    2009
    
    
    2008
    
    
    Change
    
    
    %Hearing aids and other products
    
    $
    10,452
    
    
    $
    12,698
    
    
    $
    (2,246
    )
    
    
    (17.7
    )%Services
    
    
    889
    
    
    
    1,056
    
    
    
    (167
    )
    
    
    (15.8
    )%Total cost of products sold and services
    
    $
    11,341
    
    
    $
    13,754
    
    
    $
    (2,413
    )
    
    
    (17.5
    )%Percent of total net revenues
    
    
    25.0
    %
    
    
    27.5
    %
    
    
    (2.5
    )%
    
    
    (9.1
    )%
   27




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##### Table of Contents



2009
    
    
    2008
    
    
    Change
    
    
    %Rebates offsetting base required payments on Tranche C
    
    $
    1,000
    
    
    $
    1,000
    
    
    $
    
    
    
    
    Volume rebates used to reduce Tranche C principal
    
    
    313
    
    
    
    630
    
    
    
    (317
    )
    
    
    (50.3
    )%Rebates offsetting required payments of $65 per
Siemens unit from acquired centers on Tranche B
    
    
    347
    
    
    
    346
    
    
    
    1
    
    
    
    0.3
    %Rebates offsetting interest on Tranches B and C
    
    
    2,093
    
    
    
    1,388
    
    
    
    705
    
    
    
    50.8
    %Total rebate credits
    
    $
    3,753
    
    
    $
    3,364
    
    
    $
    389
    
    
    
    11.6
    %Percent of total net revenues
    
    
    8.3
    %
    
    
    6.7
    %
    
    
    1.6
    %
    
    
    23.9
    %
  Expenses
 Dollars in thousands
    
    2009
    
    
    2008
    
    
    Change
    
    
    %Center operating expenses
    
    $
    22,690
    
    
    $
    25,456
    
    
    $
    (2,766
    )
    
    
    (10.9
    )%Percent of total net revenues
    
    
    50.0
    %
    
    
    50.8
    %
    
    
    (0.8
    )%
    
    
    (1.6
    )%General and administrative expenses
    
    $
    7,675
    
    
    $
    7,961
    
    
    $
    (286
    )
    
    
    (3.6
    )%Percent of total net revenues
    
    
    16.9
    %
    
    
    15.9
    %
    
    
    1.0
    %
    
    
    6.3
    %Depreciation and amortization
    
    $
    1,138
    
    
    $
    1,023
    
    
    $
    115
    
    
    
    11.2
    %Percent of total net revenues
    
    
    2.5
    %
    
    
    2.0
    %
    
    
    0.5
    %
    
    
    25.0
    %
     28




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Gain on Foreign Exchange
  Interest Expense
 Dollars in thousands
    
    2009
    
    
    2008
    
    
    Change
    
    
    %Notes payable from business acquisitions and others (1)
    
    $
    496
    
    
    $
    430
    
    
    $
    66
    
    
    
    15.3
    %Siemens Tranches B and C  interest forgiven (2)
    
    
    2,093
    
    
    
    1,388
    
    
    
    705
    
    
    
    50.8
    %Siemens Tranche D
    
    
    
    
    
    
    423
    
    
    
    (423
    )
    
    
    (100.0
    )%2005 Subordinated Notes (3)
    
    
    
    
    
    
    208
    
    
    
    (208
    )
    
    
    (100.0
    )%Total interest expense
    
    $
    2,589
    
    
    $
    2,449
    
    
    $
    140
    
    
    
    5.7
    %
 2009
    
    
    2008
    
    
    Change
    
    
    %Total cash interest expense (4)
    
    $
    324
    
    
    $
    689
    
    
    $
    (365
    )
    
    
    (53.0
    )%Total non-cash interest expense (5)
    
    
    2,265
    
    
    
    1,760
    
    
    
    505
    
    
    
    28.7
    %Total interest expense
    
    $
    2,589
    
    
    $
    2,449
    
    
    $
    140
    
    
    
    5.7
    %
 (1)
    
    Includes $172,000 and $263,000 in the first six months of 2009 and 2008, respectively,
of non-cash interest expense related to recording of notes at their present value by
discounting future payments to market rate of interest (see Note 4  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. A corresponding rebate credit is recorded as a
reduction of the cost of products sold (see Note 4  Long-term Debt, Notes to Consolidated
Financial Statements included herein and Liquidity and Capital Resources, below).(3)
    
    Includes $109,000 in 2008 of non-cash debt discount amortization (see Note 5 
Subordinated Notes and Warrants, Notes to Consolidated Financial Statements included
herein).(4)
    
    Represents the sum of the cash interest portion paid on the notes payable for business
acquisitions and others and the cash interest paid to Siemens on the Siemens Trance D loans(5)
    
    Represents 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, 2005 Subordinated Notes related to the debt discount amortization and interest
on Siemens Tranches B and C offset by rebates.  Income Taxes
    Net Income attributable to noncontrolling interest
   29




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##### Table of Contents



Discontinued Operations
    LIQUIDITY AND CAPITAL RESOURCES
 Siemens Transaction
  Amended Credit Agreement
    30




---



##### Table of Contents



Amended Supply Agreement
     Calculation of Pro forma Rebates to HearUSA when at least 90% ofUnits Sold in the U.S. are from Siemens (1)Quarterly Siemens Unit Sales Compared to Prior Years Comparable Quarters90%  but < 95
    %
    
    95%  to 100
    %
    

    
    > 100% < 125
    %
    
    125% and >Acquisition rebate (2)
    
    $65/ unit
    
    
    $65/ unit
    
    
    $65/ unit
    
    
    $65/ unitPlus
    
    
    Plus
    
    
    Plus
    
    
    PlusNotes payable rebate
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000Additional volume rebate
    
    
    
    
    
    
    156,250
    
    
    
    312,500
    
    
    
    468,750Interest forgiveness rebate (3)
    
    
    1,187,500
    
    
    
    1,187,500
    
    
    
    1,187,500
    
    
    
    1,187,500$
    1,687,500
    
    
    $
    1,843,750
    
    
    $
    2,000,000
    
    
    $
    2,156,250
 (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 $50 million portion of the line of credit is fully utilized.  31




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##### Table of Contents



Six Months Ended
    
    
    Three Months EndedJune 27,
    
    
    June 28,
    
    
    June 27,
    
    
    June 28,Dollars in thousands
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Portion applied against quarterly principal payments (1)
    
    $
    1,660
    
    
    $
    1,976
    
    
    $
    825
    
    
    $
    985Portion applied against quarterly interest payments
    
    
    2,093
    
    
    
    1,388
    
    
    
    1,008
    
    
    
    690$
    3,753
    
    
    $
    3,364
    
    
    $
    1,833
    
    
    $
    1,675
 (1)
    
    Includes additional volume rebates of $156,250 for the three and six months ended June 27,
2009 and $312,500 for the three and six month ended June 28, 2008.  Amended Investor Rights Agreement
  
    
    Resale registration rights for the 6.4 million shares of common stock acquired by
Siemens on December 23, 2008 under the Siemens Purchase Agreement. The Company completed
the registration of these shares for resale in the second quarter of 2009.
 
    
    Certain rights of first refusal in the event the Company chooses to issue equity or if
there is a change of control transaction involving a person in the hearing aid industry
for a period of 18 months following the December 23, 2008 amendment. Thereafter Siemens
will have a more limited right of first refusal and preemptive rights for the term of the
agreement.
 
    
    The rights to have a representative of Siemens attend meetings of the Board of
Directors of the Company as a nonvoting observer.
   Working Capital
    32




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##### Table of Contents



Cash Flows
      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)
    
    
    46,151
    
    
    
    7,203
    
    
    
    9,540
    
    
    
    5,198
    
    
    
    24,210Subtotal of obligations recorded on balance sheet
    
    
    46,151
    
    
    
    7,203
    
    
    
    9,540
    
    
    
    5,198
    
    
    
    24,210Interest to be paid on long-term debt (2 and 3)
    
    
    16,990
    
    
    
    3,886
    
    
    
    6,428
    
    
    
    5,199
    
    
    
    1,477Operating leases
    
    
    17,090
    
    
    
    6,323
    
    
    
    7,548
    
    
    
    2,469
    
    
    
    750Employment agreements
    
    
    3,438
    
    
    
    2,124
    
    
    
    1,234
    
    
    
    80
    
    
    
    Purchase obligations (4)
    
    
    3,555
    
    
    
    2,273
    
    
    
    1,282
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    
    87,224
    
    
    
    21,809
    
    
    
    26,032
    
    
    
    12,946
    
    
    
    26,437
 (1)
    
    Approximately $36.9 million can be repaid through rebate credits from Siemens, including
$2.6 million in less than 1 year and $5.2 million in years 1-3, $4.9 million in years 4-5 and
$24.2 million in more than 5 years.  33




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##### Table of Contents



(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 $3.4 million in less than 1 year and $6.1 million in years 1-3, $5.2
million in years 4-5 and $1.5 million in more than 5 years. Interest repaid through preferred
pricing reductions was $2.1 million in the first six months of 2009. (See Note 4  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 4  Long-Term Debt, Notes to Consolidated Financial
Statements included herein).(4)
    
    Purchase obligations includes the contractual commitment to AARP for campaigns to
educate and promote hearing loss awareness and prevention and the contractual commitment to
AARP for public marketing funds for the AARP Health Care Options General Program, including
$2.7 million in less than 1 year. CRITICAL ACCOUNTING POLICIES
  Business acquisitions and goodwill
     34




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##### Table of Contents




    
    The Companys stock is thinly traded;
    
    The decline in the Companys stock price during 2008 is not directly correlated to a
change in the overall operating performance of the Company; and
    
    Previously unseen pressures are in place given the global financial and economic crisis.
  Revenue recognition
   35




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##### Table of Contents



Allowance for doubtful accounts
   36




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##### Table of Contents



Marketable securities as held to maturity, trading and available for sale
   Sales returns
  Vendor rebates
  Marketing allowances
   37




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##### Table of Contents



Impairment of long-lived assets
  Stock-based compensation
   Income taxes
    RECENT ACCOUNTING PRONOUNCEMENTS
   38




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##### Table of Contents



39




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
  Fixed Rate
    
    
    Variable Rate
    
    
    Total9.5%
    
    
    5% to 16%Due February 2015
    
    
    Other$
    
    
    $
    
    
    $(000s)
    
    
    (000s)
    
    
    (000s)2009
    
    
    (2,311
    )
    
    
    (2,370
    )
    
    
    (4,681
    )2010
    
    
    (2,616
    )
    
    
    (3,298
    )
    
    
    (5,914
    )2011
    
    
    (2,589
    )
    
    
    (2,421
    )
    
    
    (5,010
    )2012
    
    
    (2,538
    )
    
    
    (559
    )
    
    
    (3,097
    )2013
    
    
    (2,451
    )
    
    
    (158
    )
    
    
    (2,609
    )Thereafter
    
    
    (24,388
    )
    
    
    
    
    
    
    (24,388
    )Total
    
    
    (36,893
    )
    
    
    (8,806
    )
    
    
    (45,699
    )Estimated fair value
    
    
    (36,893
    )
    
    
    (8,806
    )
    
    
    (45,699
    )
  40




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##### Table of Contents



Item 4.
    
    Controls and Procedures
   
 Part II Other Information
 
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
   Against/Nominee
    
    For
    
    
    WithheldStephen J. Hansbrough
    
    
    36,775,774
    
    
    
    570,364Thomas W. Archibald
    
    
    36,768,701
    
    
    
    577,437Bruce N. Bagni
    
    
    36,573,618
    
    
    
    772,520Paul A. Brown, M.D.
    
    
    30,301,932
    
    
    
    7,044,206Joseph L. Gitterman III
    
    
    36,775,703
    
    
    
    570,435Michel Labadie
    
    
    36,780,100
    
    
    
    566,038David J. McLachlan
    
    
    36,571,141
    
    
    
    774,997Stephen W. Webster
    
    
    36,780,745
    
    
    
    565,393
  For
    
    
    
    
    Against
    
    
    Abstain23,156,664
    
    
    
    
    
    1,561,658
    
    
    
    12,627,816
  41




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##### Table of Contents



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)).10.1
    
    
    Asset Purchase Agreement among Helix Hearing Inc., Helix Hearing Care of America
Corp. and 3371727 Canada Inc., dated April 27, 2009
(incorporated herein by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed May 1, 2009 (File
No. 001-11655)).10.2
    
    

Support
and Management  Services  Agreement between Hear USA, Inc. and Helix Hearing Inc., dated April 27, 2009.10.3
    
    

License
Agreement between Hear USA, Inc. and Helix Hearing case of America
Corp., dated April 24, 2009.10.4
    
    
    Amended and Restated 2007  Incentive Compensation Plan**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
 **
    
    Denotes management compensatory plan or arrangement  42




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##### Table of Contents



SIGNATURES
  HearUSA Inc.
(Registrant)August 11, 2009
    /s/ Stephen J. HansbroughStephen J. HansbroughChairman and Chief Executive Officer
HearUSA, Inc./s/ Francisco PuñalFrancisco PuñalSenior Vice President and
Chief Financial Officer
HearUSA, Inc.  43




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description10.2
    
    

Support
and Management  Services  Agreement between Hear USA, Inc. and Helix Hearing Inc., dated April 27, 2009.10.3
    
    

License
Agreement between Hear USA, Inc. and Helix Hearing case of America
Corp., dated April 24, 2009.10.4
    
    
    Amended and Restated 2007  Incentive Compensation Plan**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
 **
    
    Denotes management compensatory plan or arrangement  44