##### 



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 September 27, 2003

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   0-16453

HearUSA, Inc.

---

(Exact Name of Registrant as Specified in Its Charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Delaware                                                           |  | 22-2748248                          
|                                                                   |  |                                     
|(State of Other Jurisdiction of
Incorporation or Organization)     |  | (I.R.S. Employer
Identification No.)
|                                                                  
|1250 Northpoint Parkway, West Palm Beach, Florida                  |  | 33407                               
|                                                                   |  |                                     
|(Address of Principal Executive Offices)                           |  | (Zip Code)                          
|                                                                  
|Registrants Telephone Number, Including Area Code  (561) 478-8770





---

Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report


Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days    
Yes ü    
No

Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).    
Yes
   No  ü

On October 31, 2003, 30,423,636 shares of the Registrants Common Stock were
outstanding, including 1,876,370 exchangeable shares of HEARx Canada, Inc.





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##### 



INDEX

|         |                                            |                                                                                       |      |      
|-------- | ------------------------------------------ | ------------------------------------------------------------------------------------- | ---- | -----
|         |                                            |                                                                                       |      | Page 
|         |                                            |                                                                                       |      |      
|PART I.  |                                            | FINANCIAL INFORMATION                                                                
|        
|         | Item 1.                                    | Financial Statements:                                                                 |      |      
|        
|         | Consolidated Balance Sheets                |                                                                                       |     
|         |                                            | September 27, 2003 and December 28, 2002                                              |      | 3    
|        
|         | Consolidated Statements of Operations      |                                                                                       |     
|         |                                            | Nine months ended September 27, 2003 and September 28, 2002                           |      | 4    
|        
|         | Consolidated Statements of Operations      |                                                                                       |     
|         |                                            | Three months ended September 27, 2003 and September 28, 2002                          |      | 5    
|        
|         | Consolidated Statements of Cash Flows      |                                                                                       |     
|         |                                            | Nine months ended September 27, 2003 and September 28, 2002                           |      | 6-7  
|        
|         | Notes to Consolidated Financial Statements |                                                                                       | 7-14
|        
|         | Item 2.                                    | Managements Discussion and Analysis of Financial Condition
and Results of Operations |      | 15-21
|        
|         | Item 3.                                    | Quantitative and Qualitative Disclosures About Market Risk                            |      | 22   
|        
|         | Item 4:                                    | Controls and Procedures                                                               |      | 22   
|        
|PART II. |                                            | OTHER INFORMATION                                                                     |     
|        
|         | Item 2.                                    | Changes in Securities and Use of Proceeds                                             |      | 23   
|        
|         | Item 6.                                    | Exhibits and Reports on Form 8-K                                                      |      | 23-26
|        
|         |                                            | Signatures                                                                            |      | 27   
|        
|         |                                            | Exhibit Index                                                                         |      | 28   

2



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##### 



Part I  Financial Information

Item 1. Financial Statements

HearUSA, Inc.
consolidated Balance Sheets
ASSETS

|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |              |             |     |            | 
|------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------ | --------------------------------- | ---------------------------------------------------- | ----------- | ------------- | ---------- | ------------ | ----------- | --- | ---------- | 
|                                                                   |  |                                                                                                  |                                   |                                                      |             | September 27, |            | December 28,
|                                                                   |  |                                                                                                  |                                   |                                                      |             | 2003          |            | 2002        
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  |                                                                                                  |                                   |                                                      |             | (unaudited)   |            | (audited)   
|Current assets:                                                    |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  | Cash and cash equivalents                                                                        |                                   | $                                                    | 3,615,305   |               |            | $            | 2,410,023   |    
|                                                                   |  | Investment securities                                                                            |                                   |                                                      | 435,000     |               |            |              | 435,000     |    
|                                                                   |  | Accounts and notes receivable, less allowance for
doubtful accounts of $550,706 and $587,322     |                                   |                                                      | 7,249,226   |               |            |              | 5,963,677   |    
|                                                                   |  | Inventories                                                                                      |                                   |                                                      | 1,075,620   |               |            |              | 945,743     |    
|                                                                   |  | Prepaid expenses and other                                                                       |                                   |                                                      | 416,361     |               |            |              | 889,197     |    
|                                                                   |  | Assets of discontinued operations (Note 1)                                                       |                                   |                                                      |            |               |            |              | 1,472,849   |    
|                                                                   |  |                                                                                                  |                                   | Total current assets                                 |             |               | 12,791,512 |              |             |     | 12,116,489 | 
|Property and equipment  net                                       |  |                                                                                                  | 5,428,462                         |                                                      |             |               | 6,910,966  |             
|Intangibles, net (Note 4)                                          |  |                                                                                                  | 43,846,428                        |                                                      |             |               | 44,211,588 |             
|Deposits and other                                                 |  |                                                                                                  | 400,456                           |                                                      |             |               | 482,982    |             
|Other assets of discontinued operations (Note 1)                   |  |                                                                                                  |                                  |                                                      |             |               | 1,143,783  |             
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  | $                                                                                                | 62,466,858                        |                                                      |             | $             | 64,865,808 |             
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|LIABILITIES AND STOCKHOLDERS EQUITY                              
|Current liabilities:                                               |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  | Accounts payable                                                                                 |                                   | $                                                    | 9,184,765   |               |            | $            | 9,675,004   |    
|                                                                   |  | Accrued expenses                                                                                 |                                   |                                                      | 2,716,787   |               |            |              | 4,665,547   |    
|                                                                   |  | Accrued salaries and other compensation                                                          |                                   |                                                      | 1,105,998   |               |            |              | 1,868,772   |    
|                                                                   |  | Current maturities of long term debt                                                             |                                   |                                                      | 4,245,124   |               |            |              | 4,017,007   |    
|                                                                   |  | Dividends payable                                                                                |                                   |                                                      | 1,315,339   |               |            |              | 1,215,167   |    
|                                                                   |  | Liabilities of discontinued operations (Note 1)                                                  |                                   |                                                      |            |               |            |              | 906,364     |    
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  |                                                                                                  |                                   | Total current liabilities                            |             |               | 18,568,013 |              |             |     | 22,347,861 | 
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|Long term debt, less current maturities                            |  |                                                                                                  | 23,526,265                        |                                                      |             |               | 21,971,499 |             
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|Long term debt, less current maturities of discontinued
operations |  |                                                                                                  |                                  |                                                      |             |               | 110,890    |             
|Commitments and contingencies (Note 6)                             |  |                                                                                                  |                                  |                                                      |             |               |           |             
|Mandatorily redeemable convertible preferred stock (Note 2)        |  |                                                                                                  | 4,563,000                         |                                                      |             |               |           |             
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|Stockholders equity:                                              |  |                                                                                                  |                                   |                                                      |             |               |            |             
|Preferred stock (Note 2):                                          |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  | (Aggregate liquidation preference $2,330,000 and
$8,108,167) $1 par, 5,000,000 shares authorized |                                   |                                                      |             |               |            |              |             |    
|                                                                   |  |                                                                                                  | Series J (233 shares outstanding) |                                                      |             | 233           |            |              |             | 233 |           
|                                                                   |  |                                                                                                  |                                   | Series H Junior Participating (0 shares outstanding) |             |               |           |              |             |     |           | 
|                                                                   |  |                                                                                                  |                                   | 1998 Convertible (0 and 4,563 shares outstanding)    |             |               |           |              |             |     | 4,563      | 
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  |                                                                                                  |                                   | Total preferred stock                                |             |               | 233        |              |             |     | 4,796      | 
|                                                                   |  | Common stock: $.10 par; 50,000,000 shares authorized
28,891,355 and 24,457,055 shares issued     |                                   |                                                      | 2,889,135   |               |            |              | 2,445,705   |    
|                                                                   |  | Stock subscription                                                                               |                                   |                                                      | (412,500    | )             |            |              | (412,500    | )  
|                                                                   |  | Additional paid-in capital                                                                       |                                   |                                                      | 112,199,322 |               |            |              | 117,314,681 |    
|                                                                   |  | Accumulated deficit                                                                              |                                   |                                                      | (96,463,495 | )             |            |              | (96,765,446 | )  
|                                                                   |  | Accumulated other comprehensive income  currency
translation adjustment (Note 1)                |                                   |                                                      | 82,026      |               |            |              | 331,763     |    
|                                                                   |  | Treasury stock, at cost:523,662 & 518,660 common shares                                          |                                   |                                                      | (2,485,141  | )             |            |              | (2,483,441  | )  
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  |                                                                                                  |                                   | Total stockholders equity                           |             |               | 15,809,580 |              |             |     | 20,435,558 | 
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             
|                                                                   |  | $                                                                                                | 62,466,858                        |                                                      |             | $             | 64,865,808 |             
|                                                                   |  |                                                                                                  |                                   |                                                      |             |               |            |             

See accompanying notes to the consolidated financial statements

3



---



##### 



HearUSA, Inc.
Consolidated Statements of Operations
Nine Months Ended September 27, 2003 and September 28, 2002

|                                                                                   |                                     |                                    |            |               |            |               |            |            |            | 
|---------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | ---------- | ------------- | ---------- | ------------- | ---------- | ---------- | ---------- | 
|                                                                                   |                                     |                                    |            | September 27, |            | September 28,
|                                                                                   |                                     |                                    |            | 2003          |            | 2002         
|                                                                                   |                                     |                                    |            |               |            |              
|                                                                                   |                                     |                                    |            | (unaudited)   |            | (unaudited)  
|                                                                                   |                                     |                                    |            |               |            |              
|Net Revenues                                                                       |                                     | $                                  | 53,664,664 |               |            | $             | 40,553,650 |           
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Operating costs and expenses:                                                      |                                     |                                    |            |               |            |               |            |           
|                                                                                   | Cost of products sold               |                                    |            | 15,202,201    |            |               |            | 11,791,342 |           
|                                                                                   | Center operating expenses           |                                    |            | 26,062,405    |            |               |            | 22,933,432 |           
|                                                                                   | General and administrative expenses |                                    |            | 7,529,998     |            |               |            | 7,969,563  |           
|                                                                                   | Depreciation and amortization       |                                    |            | 2,334,585     |            |               |            | 1,777,168  |           
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|                                                                                   |                                     | Total operating costs and expenses |            |               | 51,129,189 |               |            |            | 44,471,505 | 
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Income (loss) from operations                                                      |                                     |                                    | 2,535,475  |               |            |               | (3,917,855 | )         
|Non-operating income (expense):                                                    |                                     |                                    |            |               |            |               |            |           
|Interest income                                                                    |                                     |                                    | 16,701     |               |            |               | 107,125    |           
|Interest expense                                                                   |                                     |                                    | (1,608,717 | )             |            |               | (1,196,025 | )         
|Other income                                                                       |                                     |                                    |            |               |            |               | 5,671      |           
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Income (loss) before equity in loss of affiliated company                          |                                     |                                    | 943,459    |               |            |               | (5,001,084 | )         
|Equity in loss of affiliated company                                               |                                     |                                    |           |               |            |               | (630,801   | )         
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Income (loss ) from continuing operations                                          |                                     |                                    | 943,459    |               |            |               | (5,631,885 | )         
|Discontinued operations                                                            |                                     |                                    |            |               |            |               |            |           
|Loss from discontinued operations (including loss on
disposal of $105,296 and $0) |                                     |                                    | (201,536   | )             |            |               | (226,206   | )         
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Net income (loss) before dividends on preferred stock                              |                                     |                                    | 741,923    |               |            |               | (5,858,091 | )         
|Dividends on preferred stock                                                       |                                     |                                    | (439,972   | )             |            |               | (547,052   | )         
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Net income (loss) applicable to common stockholders                                |                                     | $                                  | 301,951    |               |            | $             | (6,405,143 | )         
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Net income (loss) per common share   basic                                        |                                     | $                                  | 0.01       |               |            | $             | (0.32      | )         
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Net income (loss) per common share  diluted                                       |                                     | $                                  | 0.01       |               |            | $             | (0.32      | )         
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|Weighted average number of shares of
Common stock outstanding:                     |                                     |                                    |            |               |            |               |            |           
|                                                                                   | Basic                               |                                    |            | 30,424,466    |            |               |            | 19,862,681 |           
|                                                                                   |                                     |                                    |            |               |            |               |            |           
|                                                                                   | Diluted                             |                                    |            | 48,191,168    |            |               |            | 19,862,681 |           
|                                                                                   |                                     |                                    |            |               |            |               |            |           

See accompanying notes to the consolidated financial statements

4



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##### 



HearUSA, Inc.
Consolidated Statements of Operations
Three Months Ended September 27, 2003 and September 28, 2002

|                                                               |                                     |                                    |            |               |            |               |            |            |            | 
|-------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | ---------- | ------------- | ---------- | ------------- | ---------- | ---------- | ---------- | 
|                                                               |                                     |                                    |            | September 27, |            | September 28,
|                                                               |                                     |                                    |            | 2003          |            | 2002         
|                                                               |                                     |                                    |            |               |            |              
|                                                               |                                     |                                    |            | (unaudited)   |            | (unaudited)  
|Net Revenues                                                   |                                     | $                                  | 17,276,558 |               |            | $             | 15,882,602 |           
|                                                               |                                     |                                    |            |               |            |               |            |           
|Operating costs and expenses:                                  |                                     |                                    |            |               |            |               |            |           
|                                                               | Cost of products sold               |                                    |            | 4,745,705     |            |               |            | 5,100,773  |           
|                                                               | Center operating expenses           |                                    |            | 8,927,598     |            |               |            | 9,389,563  |           
|                                                               | General and administrative expenses |                                    |            | 2,657,870     |            |               |            | 3,104,708  |           
|                                                               | Depreciation and amortization       |                                    |            | 700,011       |            |               |            | 736,433    |           
|                                                               |                                     |                                    |            |               |            |               |            |           
|                                                               |                                     | Total operating costs and expenses |            |               | 17,031,184 |               |            |            | 18,331,477 | 
|                                                               |                                     |                                    |            |               |            |               |            |           
|Income (loss) from operations                                  |                                     |                                    | 245,374    |               |            |               | (2,448,875 | )         
|Non-operating income (expense):                                |                                     |                                    |            |               |            |               |            |           
|Interest income                                                |                                     |                                    | 4,740      |               |            |               | 14,373     |           
|Interest expense                                               |                                     |                                    | (493,179   | )             |            |               | (572,400   | )         
|Other income                                                   |                                     |                                    |            |               |            |               | 5,671      |           
|                                                               |                                     |                                    |            |               |            |               |            |           
|Loss from continuing operations                                |                                     |                                    | (243,065   | )             |            |               | (3,001,231 | )         
|                                                              
|Discontinued operations                                        |                                     |                                    |            |               |            |               |            |           
|Loss from discontinued operations                              |                                     |                                    | (3,830     | )             |            |               | (226,206   | )         
|                                                               |                                     |                                    |            |               |            |               |            |           
|Loss before dividends on preferred stock                       |                                     |                                    | (246,895   | )             |            |               | (3,227,437 | )         
|                                                              
|Dividends on preferred stock                                   |                                     |                                    | (142,547   | )             |            |               | (236,347   | )         
|                                                               |                                     |                                    |            |               |            |               |            |           
|Net loss applicable to common stockholders                     |                                     | $                                  | (389,442   | )             |            | $             | (3,463,784 | )         
|                                                               |                                     |                                    |            |               |            |               |            |           
|Net loss per common share   basic                             |                                     | $                                  | (0.01      | )             |            | $             | (0.12      | )         
|                                                               |                                     |                                    |            |               |            |               |            |           
|Net loss per common share  diluted                            |                                     | $                                  | (0.01      | )             |            | $             | (0.12      | )         
|                                                               |                                     |                                    |            |               |            |               |            |           
|Weighted average number of shares of
Common stock outstanding: |                                     |                                    |            |               |            |               |            |           
|                                                               | Basic                               |                                    |            | 30,423,652    |            |               |            | 29,990,582 |           
|                                                               |                                     |                                    |            |               |            |               |            |           
|                                                               | Diluted                             |                                    |            | 30,423,652    |            |               |            | 29,990,582 |           
|                                                               |                                     |                                    |            |               |            |               |            |           

See accompanying notes to the consolidated financial statements

5



---



##### 



HearUSA, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 27, 2003 and September 28, 2002

|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |   |            |  
|---------------------------------------------------------------------------------------- | --------------------------------- | --------------------------------------------------------------------------------------------------- | --------- | ------------------ | ---------- | ------------------ | ----------- | - | ---------- | -
|                                                                                         |                                   |                                                                                                     |           | September 27, 2003 |            | September 28, 2002
|                                                                                         |                                   |                                                                                                     |           |                    |            |                   
|                                                                                         |                                   |                                                                                                     |           | (unaudited)        |            | (unaudited)       
|Cash flows from operating activities:                                                    |                                   |                                                                                                     |           |                    |            |                    |             |  
|Net income(loss)                                                                         |                                   | $                                                                                                   | 741,923   |                    |            | $                  | (5,858,091  | )
|                                                                                         | Loss from discontinued operations |                                                                                                     |           | 201,536            |            |                    |             |  |           
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Net income (loss) from continuing operations                                             |                                   |                                                                                                     | 943,459   |                    |            |                    | (5,858,091  | )
|Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                   |                                                                                                     |           |                    |            |                    |             |  
|                                                                                         |                                   | Depreciation and amortization                                                                       |           |                    | 2,335,085  |                    |             |   | 1,816,923  |  
|                                                                                         |                                   | Provision for doubtful accounts                                                                     |           |                    | 591,663    |                    |             |   | 121,276    |  
|                                                                                         |                                   | Loss on disposition of equipment                                                                    |           |                    | 1,563      |                    |             |   | 153,137    |  
|                                                                                         |                                   | Equity loss in affiliated company                                                                   |           |                    |           |                    |             |   | 630,801    |  
|                                                                                         |                                   | Compensation expense from the issuance
of capital stock                                             |           |                    |           |                    |             |   | 40,250     |  
|Changes in assets and liabilities:                                                       |                                   |                                                                                                     |           |                    |            |                    |             |  
|(Increase) decrease in:                                                                  |                                   |                                                                                                     |           |                    |            |                    |             |  
|                                                                                         |                                   | Accounts and notes receivable                                                                       |           |                    | (1,261,040 | )                  |             |   | 228,084    |  
|                                                                                         |                                   | Inventories                                                                                         |           |                    | (135,218   | )                  |             |   | 108,141    |  
|                                                                                         |                                   | Prepaid expenses and other                                                                          |           |                    | 526,216    |                    |             |   | 375,816    |  
|Increase (decrease) in:                                                                  |                                   |                                                                                                     |           |                    |            |                    |             |  
|                                                                                         |                                   | Accounts payable                                                                                    |           |                    | (546,318   | )                  |             |   | 1,517,504  |  
|                                                                                         |                                   | Accrued salaries and other                                                                          |           |                    | (1,699,867 | )                  |             |   | 521,385    |  
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Net cash provided/(used) by continuing operations                                        |                                   |                                                                                                     | 755,543   |                    |            |                    | (344,774    | )
|Net cash used by discontinued operations                                                 |                                   |                                                                                                     | (372,098  | )                  |            |                    |            |  
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Net cash provided/(used) by operating activities                                         |                                   |                                                                                                     | 383,445   |                    |            |                    | (344,774    | )
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Cash flow from investing activities:                                                     |                                   |                                                                                                     |           |                    |            |                    |             |  
|                                                                                         |                                   | Purchase of property and equipment                                                                  |           |                    | (215,079   | )                  |             |   | (428,053   | )
|                                                                                         |                                   | Proceeds from the sale of discontinued operations                                                   |           |                    | 1,164,667  |                    |             |   |           |  
|                                                                                         |                                   | Capital expenditure from discontinued operations                                                    |           |                    | (8,196     | )                  |             |   |           |  
|                                                                                         |                                   | Purchase of investment securities                                                                   |           |                    |           |                    |             |   | (5,257,524 | )
|                                                                                         |                                   | Proceeds from the sale of mature investments                                                        |           |                    |            |                    |             |   | 5,257,524  |  
|                                                                                         |                                   | Issuance of note receivable in affliated company                                                    |           |                    |           |                    |             |   | (8,384,122 | )
|                                                                                         |                                   | Purchase of pre-combination investment in Helix                                                     |           |                    |           |                    |             |   | (2,000,000 | )
|                                                                                         |                                   | Cost of business combination                                                                        |           |                    |           |                    |             |   | (1,568,742 | )
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Net cash provided/(used) in investing activities                                         |                                   |                                                                                                     | 941,392   |                    |            |                    | (12,380,917 | )
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Cash flows from financing activities:                                                    |                                   |                                                                                                     |           |                    |            |                    |             |  
|                                                                                         |                                   | Proceeds from issuance of:                                                                          |           |                    |            |                    |             |   |            |  
|                                                                                         |                                   | Long-term debt                                                                                      |           |                    | 3,500,000  |                    |             |   | 13,123,095 |  
|                                                                                         |                                   | Principal payments of debt of discontinued operations                                               |           |                    | (29,822    | )                  |             |   |           |  
|                                                                                         |                                   | Principal payments: Long-term debt                                                                  |           |                    | (3,152,046 | )                  |             |   | (3,020,656 | )
|                                                                                         |                                   | Purchase of treasury stock                                                                          |           |                    | (1,700     | )                  |             |   |           |  
|                                                                                         |                                   | Redemption of preferred stock, net of costs                                                         |           |                    | (153,757   | )                  |             |   | (351,093   | )
|                                                                                         |                                   | Proceeds from issuance of employee stock options                                                    |           |                    | 15         |                    |             |   |           |  
|                                                                                         |                                   | Proceeds from issuance of capital stock                                                             |           |                    | 40,250     |                    |             |   | 1,500,000  |  
|                                                                                         |                                   | Dividends on preferred stock                                                                        |           |                    | (339,800   | )                  |             |   | (715,334   | )
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Net cash (used)/provided by financing activities                                         |                                   |                                                                                                     | (136,860  | )                  |            |                    | 10,536,012  |  
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Effects of exchange rate changes on cash                                                 |                                   |                                                                                                     | 17,305    |                    |            |                    |            |  
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Net increase (decrease) in cash and cash
equivalents                                     |                                   |                                                                                                     | 1,205,282 |                    |            |                    | (2,189,679  | )
|Cash and cash equivalents at beginning of period                                         |                                   |                                                                                                     | 2,410,023 |                    |            |                    | 5,561,608   |  
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Cash and cash equivalents at end of period                                               |                                   | $                                                                                                   | 3,615,305 |                    |            | $                  | 3,371,929   |  
|                                                                                         |                                   |                                                                                                     |           |                    |            |                    |             |  
|Supplemental disclosure of non-cash investing and
financing activities:                  |                                   |                                                                                                     |           |                    |            |                    |             |  
|                                                                                         |                                   | Purchase of investment in affiliated company by
exchanging notes receivable from affiliated
company |           | $                  |           |                    |             | $ | 2,700,000  |  

See accompanying notes to the consolidated financial statements

6



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##### 



HearUSA, Inc
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 nine month period ended September 27, 2003 are not necessarily
indicative of the results that may be expected for the year ending December
27, 2003. 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 28, 2002.

1.     Summary of Significant Accounting Policies

Helix Transaction

On July 27, 2001, the Company and Helix Hearing Care of America Corp., a
Canadian corporation (Helix), signed a definitive merger agreement, which
was subsequently amended and restated as of November 6, 2001. Helix owned
or managed, prior to the combination, 126 hearing healthcare clinics
located in Massachusetts, New York, Ohio, Michigan, Wisconsin, Minnesota,
Washington and Missouri as well as in the Provinces of Ontario and Quebec.
The transaction was approved by the stockholders of both the Company and
Helix on June 26, 2002 and by the Canadian courts on June 28, 2002. The
transaction closed on July 11, 2002, and was effective June 30, 2002, the
first day of the Companys third quarter of 2002, for financial reporting
purposes.

As of September 27, 2003, 2,055,943 exchangeable shares of HEARx Canada,
Inc., an indirect subsidiary of the Company, were issued or will be issued
to certain former common shareholders of Helix in connection with the
combination. Each exchangeable share of HEARx Canada, Inc. is
exchangeable for one share of the Companys common stock. These
exchangeable shares are traded on the Toronto Stock Exchange under the
symbol HUX.

Discontinued Operations

On July 15, 2003, the Company sold 100% of the shares of the Companys
three subsidiaries and selected assets associated with the management of
the centers located in the Canadian Province of Quebec, to Forget & Sauve,
Audioprothesistes, S.E.N.C. (Forget & Sauve) and 6068065 Canada Inc.,
private entities owned and controlled by Steve Forget, a former Helix
officer and director. Mr. Forget served as an officer of HearUSA until
October 2002 and as a director until May 2003. The sale agreement provided
for total payments to the Company of approximately $1.7 million,
representing, in part, payment of pre-existing debt owed the Company by
Forget & Sauve. The Company received an initial cash payment of $700,000
at closing and will receive subsequent payments of approximately $1
million through December 2003. At September 27, 2003, Forget and Sauve owed
the Company approximately $500,000. The payments are secured by the
accounts receivable of Forget & Sauve and one of the three subsidiaries.

The three subsidiaries and selected assets have been presented as a
discontinued operation and the consolidated financial statements have been
reclassified to segregate the assets, liabilities and operating results of
these subsidiaries for all periods presented. The assets of this operation
are reported under the center segment. Assets and liabilities of
discontinued operations were recorded at the lower of their carrying amount
or fair value less the cost to sell. The sale resulted in a loss on
disposal of approximately $105,000. Net revenues of the discontinued
operations for the three and six months ended June 28, 2003 were
approximately $1.4 million and $2.6 million.

7



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##### 



HearUSA, Inc
Notes to Consolidated Financial Statements
(unaudited)

Earnings Per Share

For purposes of computing net income per common share  basic and diluted,
for the nine months ended September 27, 2003, the weighted average number
of shares of common stock outstanding includes the effect of the 2,055,943
exchangeable shares of HEARx Canada, Inc. described above, as if they were
outstanding common stock of the Company on June 30, 2002, the effective
date of the combination for financial reporting purposes. For computing net
income per share  diluted for the nine months ended September 27, 2003,
16,997,723 shares were included which represents the common stock
equivalent for the outstanding convertible preferred stock of the Company.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned and majority controlled subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.

Investment in Affiliated Company

Prior to the closing of the combination with Helix, the Company owned
approximately 10.5 percent of the common shares of Helix. The Company
accounted for this investment using the equity method because the Company
had the ability to exercise significant influence over the operational and
financial policies of Helix as a result of the terms of the merger
agreement with Helix and the use of certain proceeds of the Companys
credit facility with Siemens Hearing Instruments, Inc. (Siemens) to repay
certain debts of Helix. Under the equity method, the Company recorded its
proportionate share of profits and losses of Helix based on the Companys
percentage interest in Helix.

Comprehensive Income

Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
The Companys other comprehensive income represents a foreign currency
translation adjustment.

Comprehensive income (loss) and the components of other comprehensive
income are as follows:

|                                           |  |                   |          |                    |  |              |            |               |  |   |          |   |  |   |            |  
|------------------------------------------ |  | ----------------- | -------- | ------------------ |  | ------------ | ---------- | ------------- |  | - | -------- | - |  | - | ---------- | -
|                                           |  | Nine Months Ended |          | Three Months Ended
|                                           |  |                   |          |                   
|                                           |  | September 27,     |          | September28,       |  | September 27 |            | September 28,
|                                           |  | 2003              |          | 2002               |  | 2003         |            | 2002         
|                                           |  |                   |          |                    |  |              |            |              
|Comprehensive income (loss):               |  |                   |          |                    |  |              |            |               |  |   |          |   |  |   |            |  
|Net income (loss) for period               |  | $                 | 741,923  |                    |  | $            | (5,858,091 | )             |  | $ | (246,895 | ) |  | $ | (3,227,437 | )
|Other comprehensive income:                |  |                   |          |                    |  |              |            |               |  |   |          |   |  |   |            |  
|Foreign currency translation adjustments   |  |                   | (249,737 | )                  |  |              | 485,999    |               |  |   | (248,465 | ) |  |   | 456,264    |  
|                                           |  |                   |          |                    |  |              |            |               |  |   |          |   |  |   |            |  
|Comprehensive income (loss) for the period |  | $                 | 492,186  |                    |  | $            | (5,372,092 | )             |  | $ | (495,360 | ) |  | $ | (2,771,173 | )
|                                           |  |                   |          |                    |  |              |            |               |  |   |          |   |  |   |            |  

Reclassifications

Certain amounts in the 2002 consolidated financial statements have been
reclassified in order to conform to the 2003 presentation.

8



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##### 



HearUSA, Inc
Notes to Consolidated Financial Statements
(unaudited)

Segments

Since the closing of the Helix transaction, the Company operates in three
business segments: the operation and management of centers; the
establishment, maintenance and support of an affiliated network; and the
operation of an e-commerce business . The Companys business units are
located in the United States and Canada.

|                              |                               |   |            |            |            |   |         |   |           |   |         |           |  |   |             |            |  |   |            |            | 
|----------------------------- | ----------------------------- | - | ---------- | ---------- | ---------- | - | ------- | - | --------- | - | ------- | --------- |  | - | ----------- | ---------- |  | - | ---------- | ---------- | 
|                              |                               |   | Centers    |            | E-commerce |   | Network |   | Corporate |   | Total  
|                              |                               |   |            |            |            |   |         |   |           |   |        
|Net Revenues                  |                               |   |            |            |            |   |         |   |           |   |         |           |  |   |             |            |  |   |            |           
|9 months ended 9/27/03        |                               | $ | 52,826,000 |            |            | $ | 53,000  |   |           | $ | 786,000 |           |  | $ |            |            |  | $ | 53,665,000 |           
|9 months ended 9/28/02        |                               |   | 40,216,000 |            |            |   | 16,000  |   |           |   | 322,000 |           |  |   |            |            |  |   | 40,554,000 |           
|                             
|Income (Loss) from Operations |                               |   |            |            |            |   |         |   |           |   |         |           |  |   |             |            |  |   |            |           
|9 months ended 9/27/03        |                               |   | 10,693,000 |            |            |   | (38,000 | ) |           |   | 390,000 |           |  |   | (8,509,000  | )          |  |   | 2,536,000  |           
|9 months ended 9/28/02        |                               |   | 6,248,000  |            |            |   | (13,000 | ) |           |   | 95,000  |           |  |   | (10,248,000 | )          |  |   | (3,918,000 | )         
|                             
|9 months ended 9/27/03        |                               |   |            |            |            |   |         |   |           |   |         |           |  |   |             |            |  |   |            |           
|                              | Depreciation and
amortization |   |            | 1,623,000  |            |   |         |  |           |   |         | 3,000     |  |   |             | 709,000    |  |   |            | 2,335,000  | 
|                              | Identifiable assets           |   |            | 43,977,000 |            |   |         |  |           |   |         | 1,702,000 |  |   |             | 16,788,000 |  |   |            | 62,467,000 | 
|                              | Capital Expenditures          |   |            | 239,000    |            |   |         |  |           |   |         |          |  |   |             | 178,000    |  |   |            | 417,000    | 
|                             
|9 months ended 9/28/02        |                               |   |            |            |            |   |         |   |           |   |         |           |  |   |             |            |  |   |            |           
|                              | Depreciation and
amortization |   |            | 1,166,000  |            |   |         |  |           |   |         | 1,000     |  |   |             | 610,000    |  |   |            | 1,777,000  | 
|                              | Identifiable assets           |   |            | 48,335,000 |            |   |         |  |           |   |         | 964,000   |  |   |             | 16,786,000 |  |   |            | 66,085,000 | 
|                              | Capital Expenditures          |   |            | 221,000    |            |   |         |  |           |   |         |          |  |   |             | 207,000    |  |   |            | 428,000    | 

Income (Loss) from Operations at the segment level are computed before general
and administrative expenses.

Stock-based compensation

The Company has granted stock options to employees and directors under
stock option plans. The Company accounts for those grants using the
intrinsic value method under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Stock-based employee
compensation cost reflected in net income (loss) is not significant, as all
options granted under those plans had an exercise price greater than or
equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income (loss) and
income (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, (SFAS 123) Accounting for
Stock-Based Compensation, to stock-based employee compensation:

9



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HearUSA, Inc
Notes to Consolidated Financial Statements
(unaudited)

|                                                                                                                |             |   |                   |      |                    |   |                |       |                |   |          |       |   |   |            |       |  
|--------------------------------------------------------------------------------------------------------------- | ----------- | - | ----------------- | ---- | ------------------ | - | -------------- | ----- | -------------- | - | -------- | ----- | - | - | ---------- | ----- | -
|                                                                                                                |             |   | Nine Months Ended |      | Three Months Ended
|                                                                                                                |             |   | Sept. 27, 2003    |      | Sept. 28, 2002     |   | Sept. 27, 2003 |       | Sept. 28, 2002
|Net income (loss) applicable to
common stockholders                                                             |             | $ | 301,951           |      |                    | $ | (6,405,143     | )     |                | $ | (389,442 | )     |   | $ | (3,463,784 | )    
|Deduct: Total stock based employee
Compensation expense determined
under fair value based method for all
awards |             |   | (312,000          | )    |                    |   | (300,000       | )     |                |   | (134,000 | )     |   |   | (102,000   | )    
|Pro Forma                                                                                                       |             | $ | (10,049           | )    |                    | $ | (6,705,143     | )     |                | $ | (523,442 | )     |   | $ | (3,565,784 | )    
|Income (loss) per share  basic                                                                                 |             |   |                   |      |                    |   |                |       |                |   |          |       |   |   |            |      
|                                                                                                                | As reported |   | $                 | 0.01 |                    |   | $              | (0.32 | )              |   | $        | (0.01 | ) |   | $          | (0.12 | )
|                                                                                                                | Pro forma   |   | $                 | 0.00 |                    |   | $              | (0.34 | )              |   | $        | (0.02 | ) |   | $          | (0.12 | )
|Income (loss) per share  diluted                                                                               |             |   |                   |      |                    |   |                |       |                |   |          |       |   |   |            |      
|                                                                                                                | As reported |   | $                 | 0.01 |                    |   | $              | (0.32 | )              |   | $        | (0.01 | ) |   | $          | (0.12 | )
|                                                                                                                | Pro forma   |   | $                 | 0.00 |                    |   | $              | (0.34 | )              |   | $        | (0.02 | ) |   | $          | (0.12 | )

For purposes of the above disclosure, the determination of the fair value
of stock options granted in 2003 and 2002 was based on the following: (i) a
risk free interest rate of 2.15%, and 3.42% respectively; (ii) expected
option lives ranging from 5 to 10 years; (iii) expected volatility in the
market price of the Companys common stock of 93%, and 98% respectively;
and (iv) no dividends on the underlying common stock.

2.     Stockholders Equity

Conversion of Preferred Stock into Shares of Common Stock

During the nine months ended September 28, 2002, 214 shares of the 1998
Convertible Preferred Stock plus accrued dividends of approximately $70,000
and an 8% premium of approximately $17,000 were redeemed for cash of
approximately $351,000.

Common Stock

During the nine months ended September 27, 2003 no warrants were
exercised; employee stock options for 20 shares of common stock were
exercised.

Private Placement

On March 29, 2002, the Company closed on a private placement of 1.5 million
shares of common stock and 1.5 million common stock purchase warrants for
an aggregate sales price of $1.5 million. The offers and sales were made
only to accredited investors as defined in Rule 501(a) of Regulation D
and the Company relied on Regulation D and Section 4(2) of the Securities
Act of 1933 to issue the securities without registration. The warrants may
be exercised at any time until March 29, 2005 to purchase shares of common
stock for an exercise price of $1.15 per share. The Company has undertaken
to register the common stock for resale.

All members of the board of directors of the Company, as of March 29, 2002,
participated in the private placement, purchasing 805,000 of the 1,500,000
shares of common stock. Because the shares were sold at a $0.05 per share
discount to the quoted market price of $1.05 per share, additional
compensation expense of approximately $40,000 was incurred for the quarter
ended March 30, 2002. The fair value of the warrants was not significant.
Subsequent to the closing, the directors agreed with the Company to pay an
additional $0.05 per share such that each directors

10



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HearUSA, Inc
Notes to Consolidated Financial Statements
(unaudited)

purchase would be at
the then quoted market price of $1.05 per share. These additional amounts
were paid to the Company in June 2003.

1998 Convertible Preferred Stock

On August 27, 2003, the Company exchanged all 4,563 outstanding shares of
its 1998 Convertible Preferred Stock for 4,563 shares of a newly designated
convertible preferred stock, 1998 E Series Convertible Preferred Stock
(1998 E Convertible Preferred Stock). All 1998 E Convertible Preferred
Stock not converted or redeemed by December 18, 2006 must be redeemed by
the Company on December 18, 2006. The 1998 E Convertible Preferred Stock is
presented as Mandatorily Redeemable Convertible Preferred Stock in the
accompanying consolidated balance sheet as of September 27, 2003. The old
1998 Convertible Preferred Stock was scheduled to convert by its terms into
common stock on August 27, 2003. The Company has the right to redeem the
newly designated preferred stock at its stated value plus accrued but
unpaid premiums for sixteen months and thereafter until the maturity date
at 108% of its stated value plus accrued but unpaid premiums.

As part of the transaction, the Company has agreed that accrued but unpaid
premiums on the 1998 Convertible Preferred Stock and the newly designated
preferred stock will be paid in cash each month beginning in November 2003
and continuing until December 2006. The holders have agreed that they will
not convert the newly designated preferred stock into the Companys common
stock prior to November 1, 2005, except in the event of a default in
payment of premiums or unless on or after December 10, 2004 the price of
the common stock reaches a trading price at or above $3.00 per share and
the holders sell at or above $3.00 per share. If converted during the
period from December 10, 2004 until November 1, 2005 based on the trading
price reaching $3.00 per share, the holders can convert
only a number of shares of the newly designated preferred stock that would yield upon
conversion no more than 744,911 shares of HearUSA common stock.

3.     Investment in and Advances to Affiliated Company

On November 16, 2001, the Company loaned $700,000 to Helix for use by
Helix as part of the $3.5 million acquisition by Helix of substantially
all of the capital stock of Auxiliary Benefits Corporation, a Colorado
corporation doing business as National Ear Care Plan (NECP). The note
was secured by substantially all of the assets of NECP, bore interest at a
rate of prime plus 1% (6% at December 29, 2001) per annum and originally
matured on November 16, 2002. On January 10, 2002, the Company loaned to
Helix an additional $2 million to complete the NECP transaction. On
January 14, 2002, the Company and Helix entered into a subscription
agreement pursuant to which the Company purchased 4,853,932 common shares
of Helix for an aggregate purchase price of $2.7 million. The purchase
price was paid using the $2.7 million in loans to Helix. Upon
consummation of the purchase of the 4,853,932 Helix common shares, the
Company became an approximate 10.5 percent owner of Helix common shares.
Prior to the closing of the combination with Helix, the Company accounted
for this investment using the equity method. Approximately $631,000 was
recorded as equity in loss of affiliated company for the nine months ended
September 28, 2002, representing the Companys equity in the net loss of
Helix from the January 14, 2002 acquisition date to June 29, 2002.

11



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HearUSA, Inc
Notes to Consolidated Financial Statements
(unaudited)

In connection with the combination with Helix, the fiscal year end of Helix
for financial reporting purposes was changed from November 30 to the last
Saturday in December to conform to the Companys fiscal year end. As a
result, the following components of the Companys consolidated statements
of operations for the three months ended March 30, 2002 and June 29, 2002
would be restated for the effect on the Companys equity in Helixs net
loss.

|                                                         |  |                    |            |                    |  |   |            |  
|-------------------------------------------------------- |  | ------------------ | ---------- | ------------------ |  | - | ---------- | -
|                                                         |  | Three Months Ended |            | Three Months Ended
|                                                         |  | March 30, 2002     |            | June 29, 2002     
|Equity in net loss of affiliated company,                |  | $                  | (61,405    | )                  |  | $ | (27,015    | )
|Equity in net loss of affiliated company,
as restated    |  | $                  | (72,086    | )                  |  | $ | (558,715   | )
|Net loss applicable to common stockholders               |  | $                  | (1,552,804 | )                  |  | $ | (846,174   | )
|Net loss applicable to common stockholders,
as restated  |  | $                  | (1,563,485 | )                  |  | $ | (1,377,874 | )
|                                                        
|Net loss per common share-basic and diluted              |  | $                  | (0.11      | )                  |  | $ | (0.05      | )
|                                                        
|Net loss per common share-basic and diluted,
as restated |  | $                  | (0.11      | )                  |  | $ | (0.09      | )

4.     Goodwill and Other Intangible Assets

At September 27, 2003 and December 28, 2002, the Company had goodwill of
approximately $32,400,000 and $32,459,000. The Company acquired goodwill
of approximately $2,485,000 resulting from its purchase of 10.5% of Helix
in January 2002, and approximately $29,915,000 resulting from the Helix
combination effective June 30, 2002., Approximately $60,000 of goodwill
associated with the Quebec operations (acquired as part of the Helix
combination and disposed of on July 15, 2003  see Note 1) was included in
Other assets of discontinued operations in the accompanying consolidated
balance sheet as of December 28, 2002. In addition, approximately
$7,200,000 of trademarks and tradenames, not subject to amortization, were
acquired in the Helix combination.

As of September 27, 2003 and December 28, 2002, the gross carrying amount
of the Companys intangible assets subject to amortization, which consist
of patient files, was $5,358,000 and $6,115,000, respectively, and the
accumulated amortization was approximately $1,108,000 and $748,000,
respectively. The Company had a patient file intangible asset of
approximately $790,000 relating to the Quebec operations with a net
carrying amount of approximately $712,000 (see Note 1) which was included
in Other assets of discontinued operations in the accompanying consolidated
balance sheets as of December 28, 2002. The aggregate amortization expense
for the Quebec patient file intangible for the six months ended June 28,
2003 was approximately $42,000. For each of the nine months ended September
27, 2003 and September 28, 2002, the aggregate amortization expense for
these assets was approximately $412,000 and $142,000, respectively. At
September 27, 2003, the estimated amortization expense for the next five
fiscal years is approximately: 2003  $127,000, 2004  $460,000, 2005 -
$448,000, 2006  $434,000, 2007- $418,000, and thereafter 
$2,363,000.

5.     Recent Accounting Pronouncements

In December 2002, the FASB issued SFAS, No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. This statement
amends SFAS 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value

12



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##### 



HearUSA, Inc
Notes to Consolidated Financial Statements
(unaudited)

based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based accounting for
employee compensation and the effect of the method used on reported
results. SFAS 148 is generally effective for financial statements for
fiscal years ending after December 15, 2002. The effect of the adoption of
SFAS 148 on the Companys financial position and results of operations was
not material as the Company continues to use the intrinsic value method.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees and Indebtedness of Others (FIN 45). FIN 45 elaborates on the
disclosures that a guarantor should make in its interim and annual
financial statements regarding its obligations relating to the issuance of
certain guarantees. It also requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
The impact of adopting FIN 45 on the Companys financial position and
results of operations was not material.

In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities, which clarifies the application of Accounting Research
Bulletin No. 51, Consolidated Financial Statements, to certain entities
in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial support
from other parties. FIN 46 is applicable immediately for variable interest
entities created after January 31, 2003. For variable interest entities
created prior to January 31, 2003, the provisions of FIN 46 are applicable
no later than July 1, 2003. This Interpretation did not have a material
effect on the Companys consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. It is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement
did not have a material effect the Companys consolidated results of
operations or financial position.

6.     Liquidity

As of September 27, 2003, the Company has an excess of current liabilities
over current assets of approximately $5.8 million. For the nine months
ended September 27, 2003, the Company generated income from continuing
operations of approximately $943,459. The Company is dependent upon
generating sufficient cash flow from operations or financings to repay its
liabilities. Additionally, the Companys supply agreement with Siemens
requires full payment for hearing aids purchased from Siemens within 60
days, from statement date. As of September 27, 2003, the Company was in
compliance with those payment provisions See Note 7 below.. On October 3,
2003, the Company paid Siemens approximately $2.8 million and is now
current on its supply agreement payment obligation. Upon noncompliance,
Siemens may declare the Company to be in default of the supply agreement by
written notification, which, if not cured within 60 days of the date of
written notification, would be an event of default under the Companys
$51,875,000 secured credit facility with Siemens and Siemens would have the
right to declare all amounts outstanding under the credit facility
immediately due and payable. Any non-compliance with the supply agreement
could have a material adverse effect on the Companys financial condition
and continued operations.

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HearUSA, Inc
Notes to Consolidated Financial Statements
(unaudited)

The Company believes that current cash, cash equivalents and revenues from
operations, at current net revenue levels, will be sufficient to support
the Companys operational needs through the next twelve months, although
there can be no assurance that the Company can maintain compliance with
Siemens loan covenants, that net revenue levels will remain at or higher
than current levels or that unexpected cash needs will not arise for which
cash, cash equivalents and revenues from operations will be sufficient.
Cash flow for the final quarter of 2003 is expected to be impacted by the
approximate $700,000 payment of accrued dividends the Company must make to
holders of the 1998-E Series Convertible Preferred Stock in late November
and certain tax and other annual payments due in December. The Company is
considering various financing options to address the current shortfall in
working capital and to repay the $2 million notes payable. See Note 7
below. The Company might consider short term debt,or additional equity or
debt offerings. There can be no assurance, however, that such financing
will be available to the Company on favorable terms or at all. The Company
also is continuing its aggressive cost controls and gross margin
improvements.

7.     Subsequent Event

On October 3, 2003, the Company completed a private placement of $2 million
in unsecured notes payable and common stock purchase warrants with a number
of investors, including three members of the Companys board of directors. The non-participating directors approved the transaction.
The notes bear interest at a rate of 15 percent for the first six months
and 18 percent for the second six months with principal and unpaid interest
due on maturity of October 1, 2004. The financing included seven-year
warrants, which cannot be exercised during the first two years, to purchase
a total of 800,000 shares of the Companys common stock. The outside
lenders warrants have an exercise price of $1.25 per share while the
participating directors warrants have an exercise price of $1.31 per
share, the quoted closing price of the common stock on the day of the
financing. Proceeds from the financing were used to raise additional cash
to pay Siemens under the supply agreement. If not repaid at the end of the
one-year term, the notes and unpaid interest will convert into shares of
the Companys common stock at a rate of $0.75 per share, and the holders
will be entitled to an aggregate of 800,000 additional common stock
purchase warrants.

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|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- |  | -------------------------------------------------------------------------------------

GENERAL

On July 11, 2002, the Company completed its acquisition of Helix Hearing
Care of America Corp., a Canadian corporation (Helix). Helix owned or
managed, prior to the combination, 126 hearing healthcare clinics located
in Massachusetts, New York, Ohio, Michigan, Wisconsin, Minnesota,
Washington and Missouri as well as in the Provinces of Ontario and Quebec.
The transaction was effective June 30, 2002 for financial reporting
purposes. In connection with the completion of the business combination, on
July 8, 2002 the Company changed its name from HEARx Ltd. to HearUSA, Inc.
and increased its authorized capital. The Companys common stock continues
to trade on the American Stock Exchange under the symbol EAR. The
exchangeable shares of HEARx Canada, Inc., the Companys Canadian
subsidiary, trade on the Toronto Stock Exchange under the symbol HUX.

The Companys current network consists of 158 company-owned centers in 11
states and one Canadian province and approximately 1400 affiliated
providers in 49 states. The Company intends, as its long-term goal, to
establish a nationwide network of affiliated providers and company-owned
hearing care centers.

RESULTS OF OPERATIONS

For the three months ended September 27, 2003 compared to the three
months ended September 28, 2002

On July 15, 2003, the Company sold 100% of the shares of the Companys
three subsidiaries and selected assets associated with the management of
the centers located in the Canadian Province of Quebec. The results of the
Quebec operations have been excluded from results of operations and are
classified as discontinued operations in the accompanying financial
statements.

Net revenues for the quarter ended September 27, 2003 increased $1,393,956,
or 8.8%, to $17,276,558 from $15,882,602 in the comparable quarter of
2002. This increase is primarily the result of more hearing aids being
sold for the quarter ended September 27, 2003 than during the comparable
quarter of 2002, offset by a decrease in the average unit selling price.

Cost of products sold decreased $355,068, or 7.0%, to $4,745,705 in the
quarter ended September 27, 2003 from $5,100,773 in the comparable quarter
of 2002. This decrease is primarily the result of improved product pricing
the Company received as a result of the former Helix centers selling more
Siemens products for the quarter ended September 27, 2003 than the
comparable quarter of 2002. The cost of products sold as a percent of net
revenues was 27.5% and 32.1% for the third quarter of 2003 and 2002,
respectively. Included in the cost of product sold are preferred pricing
discounts of approximately $982,000 and $814,000 for the quarters ended
September 2003 and 2002, respectively. Such pricing reductions from Siemens
are accounted for as reductions of cost of products sold for financial
reporting purposes.

Center operating expenses decreased $461,965, or 4.9%, to $8,927,598 in the
quarter ended September 27, 2003 from $9,389,563 in the comparable quarter
of 2002. This decrease is attributable to the cost reduction program the
Company first implemented in May 2001. The Company has continued to reduce
its marketing programs costs, reducing center advertising expense to
$1,132,236, or 6.6% of revenue in the quarter ended September 27, 2003,
down from $1,354,381, or 8.5% in the comparable quarter of 2002. Also,
center wages expense decreased $265,598 or 5.9%, to $4,229,076 in the
quarter ended September 27, 2003 from $4,494,674 from the comparable
quarter of 2002, which was offset by an increase in bad debt expense of
$318,462 relating to old insurance receivables deemed uncollectible.

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General and administrative expenses decreased $446,838, or 14.4%, to
$2,657,870 in the quarter ended September 27, 2003 from $3,104,708 in the
comparable quarter of 2002. This decrease is primarily the result of the
sale of the Quebec operation, which allowed the Company to eliminate the
Montreal corporate office and consolidate those functions in West Palm
Beach, Florida. In the comparable quarter of 2002, the Company had an
approximately $140,000 loss on the disposal of fixed assets for a closed
location.

Depreciation and amortization expense decreased $36,422, or 4.9%, to
$700,011 in the quarter ended September 27, 2003 from $736,433 in the
comparable period of 2002. This decrease is primarily the result of
certain equipment becoming fully depreciated during 2003.

Interest income decreased $9,633, or 67.0%, to $4,740 in the quarter
ending September 27, 2003 from $14,373 in the comparable quarter of 2002.
This decrease is primarily attributable to the decline in the average
daily balance of cash and investments. Interest expense decreased $79,221
to $493,179 in the quarter ended September 27, 2003 from $572,400 in the
comparable quarter of 2002. This decrease is attributable to
approximately $258,000 less interest expense in Ontario offset by an
increase of approximately $90,000 in interest on the credit facility with
Siemens due to issuance of Tranche E in March 2003.

For the nine months ended September 27, 2003 compared to the nine
months ended September 28, 2002

On July 15, 2003, the Company sold 100% of the shares of the Companys
three subsidiaries and selected assets associated with the management of
the centers located in the Canadian Province of Quebec. The results of the
Quebec operations have been excluded from results of operations and are
classified as discontinued operations in the accompanying financial
statements.

Net revenues increased $13,111,014, or 32.3%, to
  $53,664,664 for the nine months ended September 27, 2003 from $40,553,650
  in the comparable period of 2002. The increase in revenues is principally from
  the revenues of the centers acquired in the Helix acquisition of July 2002 of
  approximately $10,900,000 for the first six months of 2003, which was not included
  in the first six months of 2002. In addition the Company sold more hearing aids
  in the nine months ended September 27, 2003 than the comparable period
  of 2002, which was offset by a decrease in the average unit selling price.

Cost of products sold increased $3,410,859, or
  28.9%, to $15,202,201 in the nine months ended September 27, 2003 from
  $11,791,342 in the comparable period of 2002. The increase is the direct result
  of inclusion of cost of products sold at the former Helix centers of approximately
  $3,029,000 for the first six months of 2003, which was not included in the comparable
  period of 2002. In addition, HearUSAs cost of products sold increased
  approximately $382,000. This increase is primarily the result of increase in
  revenues offset by a reduction resulting from improved product pricing the Company received
  as a result of the former Helix centers selling more Siemens products during the third
  quarter of 2003 as compared to the same period in 2002. Included in the cost of products sold
  are preferred pricing reductions
  of approximately $2,978,000 and $2,490,000 for the nine months ended September 27,
  2003 and September 28, 2002, respectively. Such pricing reductions from
  Siemens are accounted for as reductions of cost of products sold for financial
  reporting purposes. The cost of products sold as a percent of net revenues was
  28.3% and 29.1% for the nine months ended September 2003 and 2002, respectively.

Center operating expenses increased $3,128,973,
  or 13.6%, to $26,062,405 in the nine months ended September 27, 2003 from
  $22,933,432 in the comparable period of 2002. This increase is related to inclusion
  of operating expenses for the former Helix centers of approximately $5,116,000
  for the first six months of 2003, which were not included in the comparable
  period of 2002. HearUSAs center operating expenses, excluding the former
  Helix centers, decreased approximately $1,927,000 for the nine months ended
  September 27, 2003. This decrease is attributable to the cost reduction
  program the Company first implemented in May 2001. The Company continued to
  reduce its marketing programs, reducing center advertising expense to

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$2,763,300, or 7.4% of revenue, excluding the former Helix
centers, in the nine months ended September 27, 2003, down from
$4,047,500, or 11.6% in the comparable period of 2002. In addition, center
wages expense and regional office costs also decreased $322,543 or 3.4%,
and $352,991 or 27.9%, respectively, to $9,298,656 and $913,636,
respectively, in the nine months ended September 27, 2003 from $9,621,199
and $1,266,627, respectively, from the comparable period of 2002.

General and administrative expenses decreased $439,565, or 5.5%, to
$7,529,998 in the nine months ended September 27, 2003 from $7,969,563 in
the comparable period of 2002. This decrease is attributable to less
expense of approximately $270,000 from the elimination of the Montreal
corporate office at the beginning of the third quarter of 2003
following the divestiture of the Quebec subsidiaries. In addition, the Company reduced its marketing
programs, reducing corporate advertising $119,068 to $185,204 in the nine
months ended September 27, 2003 compared with $304,272 in the comparable
period of 2002.

Depreciation and amortization expense increased
  $557,417, or 31.4%, to $2,334,585 in the nine months ended September 27,
  2003 from $1,777,168 in the comparable period of 2002. This increase is related
  to the former Helixs depreciation and amortization expense of approximately
  $331,000 for the first six months of 2003, which was not included in the comparable
  period of 2002 and approximately $234,000 of additional amortization of certain
  intangible assets acquired in the combination.

Interest income decreased $90,424, or 84.4%, to
  $16,701 in the nine months ended September 27, 2003 from $107,125 in the
  comparable period of 2002. This decrease is primarily attributable to the decline
  in the average daily balance of cash and investments. Interest expense increased
  $412,692 to $1,608,717 in the nine months ended September 27, 2003 from
  $1,196,025 in the comparable period of 2002. This increase is attributable to
  the former Helixs interest expense of $310,000 for the first six months
  of 2003, which was not included in the comparable period of 2002 and approximately
  $197,000 in interest on the credit facility with Siemens due to the issuance
  of Tranche E in March 2003.

LIQUIDITY AND CAPITAL RESOURCES

During the first nine months of 2003, working capital
  increased $4,454,871 to a negative $5,776,501 as of September 27, 2003
  from a negative $10,231,372 as of December 28, 2002. This is a direct result
  of the additional $3.5 million financing the Company received from Siemens
  in March 2003 and the income generated by the Company. The working capital of
  negative $5,776,501 includes approximately $2.9 million which represents the current
  portion of the long-term debt to Siemens, which may be repaid through preferred
  pricing reductions.

On December 7, 2001, the Company obtained a secured credit facility from
Siemens comprised of (a) a $10,875,000 secured five-year term loan credit
facility (the Tranche A Loan); (b) a $25,000,000 secured five-year
revolving loan credit facility (the Tranche B Loan); (c) a $3,000,000
secured five-year term loan facility (the Tranche C Loan) and (d) a
$13,000,000 secured five-year term loan credit facility (the Tranche D
Loan). On March 14, 2003, the Company obtained an additional $3,500,000
secured five-year term loan from Siemens bearing interest at a rate of 10%
annually (the Tranche E Loan). Tranche E Loan was obtained pursuant to an
amendment to the Companys credit agreement with Siemens and is otherwise
subject to the terms and conditions of the credit agreement and related
security agreement. At September 27, 2003 $6,475,000, $89,167,
$2,250,000, $13,000,000 and $3,500,000, representing principal on the
Tranche A, Tranche B, Tranche C, Tranche D, and Tranche E Loans,
respectively, were outstanding. As of September 27, 2003, approximately
$24,900,000 is available to the Company for acquisitions under Tranche B of
the credit facility.

The Siemens credit facility imposes certain financial and other
covenants on the Company, which are customary for loans of this size and
nature including restrictions on the conduct of the Companys business, the
occurrence of indebtedness, merger or sale of assets, the modification of
material agreements, changes in capital structure, making certain payments
and paying dividends.

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If the Company cannot maintain compliance with these
covenants, Siemens may terminate future funding under the credit facility
and declare all then outstanding amounts under the facility immediately due
and payable.

The Tranche A, B and C Loans are payable quarterly over five years with the
outstanding principal and interest at 10%, due and payable on the final
maturity date. Principal and interest, at the prime rate (as defined) plus
1%, on the Tranche D Loan is payable on the final maturity date. The
Company is required to make monthly payments of interest only on the
Tranche E Loan in the first year. In years two through five, the Company
must make monthly principal and interest payments. Quarterly
principal and interest payments on the Tranche A, B and C Loans may be paid
through preferred pricing reductions received from Siemens by HearUSA as
long as the Company purchases certain minimum percentages of its
requirements of hearing aids from Siemens. The Company is also required to
make additional payments on the Tranche D Loan under the following
conditions. The Company must make a payment equal to 25% of net
proceeds it receives from the issuance of stock or stock equivalents. In
addition, within 120 days of any fiscal year end, the Company must make a
payment equal to 20% of Excess Cash Flow (as defined in the credit
agreement) for such fiscal year end.

As of September 27, 2003, the Company has an excess of current liabilities
over current assets of approximately $5.8 million. For the nine months
ended September 27, 2003 the Company generated income from continuing
operations of $943,459. The Company is dependent upon generating
sufficient cash flow from operations or financings to repay its
liabilities. Cash on hand as of September 27, 2003 was approximately $3.6
million, of which approximately $1.0 million was used for the October 3,
2003 payment of approximately $2.8 million to Siemens under the supply
agreement. The Companys supply agreement with Siemens requires full
payment for hearing aids purchased from Siemens within 60 days from
statement date. As of September 27, 2003, the Company was in compliance
with those payment provisions and upon the October 3, 2003 payment is now
current. Upon noncompliance, Siemens may declare the Company to be in
default of the supply agreement by written notification, which, if not
cured within 60 days of the date of written notification, would be an event
of default under the Companys credit facility with Siemens and Siemens
would have the right to declare all amounts outstanding under the credit
facility immediately due and payable. Any non-compliance with the supply
agreement could have a material adverse effect on the Companys financial
condition and continued operations.

On October 3, 2003, the Company completed a private placement of $2 million
in unsecured notes payable and common stock purchase warrants with a number
of investors including three members of the Companys board of directors.
The notes bear interest at a rate of 15 percent for the first six months
and 18 percent for the second six months with principal and unpaid interest
due on maturity of October 1, 2004. The financing included seven-year
warrants, which cannot be exercised during the first two years, to purchase
a total of 800,000 shares of the Companys common stock. The outside
lenders warrants have an exercise price of $1.25 per share while the
participating directors warrants have an exercise price of $1.31 per
share, the quoted closing price of the common stock on the day of the
financing. The financing was completed to raise additional cash to pay
Siemens under the supply agreement. If not repaid at the end of the
one-year term, the notes and unpaid interest would convert into shares of
the Companys common stock at a rate of $0.75 per share, and the holders
will be entitled to an aggregate of 800,000 additional common stock
purchase l warrants.

The Company believes that current cash, cash equivalents and revenues from
operations, at current net revenue levels, will be sufficient to support
the Companys operational needs through the next twelve months, although
there can be no assurance that the Company can maintain compliance with the
Siemens loan covenants, that net revenue levels will remain at or higher
than current levels or that unexpected cash needs will not arise for which
the cash, cash equivalents and revenues from operations will be sufficient.
Cash flows for the final quarter of 2003 are expected to be impacted by the
approximate $700,000 payment of accrued dividends the Company must make to
the holders of the 1998-E Series Convertible Preferred Stock in late
November and certain tax

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and other annual payments due in December. The
Company is considering various financing options to address the current
shortfall in working capital and to repay the $2 million notes payable.
The Company might consider short term debt, or additional equity or debt
offerings. There can be no assurance however, that such financing will be
available to the Company on favorable terms or at all. The Company also is
continuing its aggressive cost controls and gross margin improvements.

Below is a chart setting forth the Companys contractual cash payment
obligations which have been aggregated to facilitate a basic understanding
of the Companys liquidity as of September 27, 2003:

|                                   |  |                        |            |      |  |        |           |       |  |       |            |         |  |   |            |  |  |   |         | 
|---------------------------------- |  | ---------------------- | ---------- | ---- |  | ------ | --------- | ----- |  | ----- | ---------- | ------- |  | - | ---------- |  |  | - | ------- | 
|                                   |  | Payments Due by Period
|                                   |  |                        |            |      |  | Less   |           |       |  |       |            |         |  |   |            |  |  |  
|Contractual                        |  |                        |            |      |  | than 1 |           | 1  3 |  | 4  5 |            | After 5
|Obligations                        |  | Total                  |            | Year |  | Years  |           | Years |  | Years
|                                   |  |                        |            |      |  |        |           |       |  |      
|Long-Term Debt                     |  | $                      | 27,771,000 |      |  | $      | 4,245,000 |       |  | $     | 7,467,000  |         |  | $ | 16,059,000 |  |  | $ |        | 
|Operating Leases                   |  |                        | 13,098,000 |      |  |        | 4,967,000 |       |  |       | 7,227,000  |         |  |   | 753,000    |  |  |   | 151,000 | 
|                                   |  |                        |            |      |  |        |           |       |  |       |            |         |  |   |            |  |  |   |         | 
|Total Contractual Cash
Obligations |  | $                      | 40,869,000 |      |  | $      | 9,212,000 |       |  | $     | 14,694,000 |         |  | $ | 16,812,000 |  |  | $ | 151,000 | 
|                                   |  |                        |            |      |  |        |           |       |  |       |            |         |  |   |            |  |  |   |         | 

Net cash used by operating activities decreased from $344,774 in the
first nine months of 2002 to cash being provided by operating activities
of $383,445 in the first nine months of 2003. The decrease in net cash
used by operating activities was primarily the result of a decrease in
net loss between periods of approximately $6,800,000, offset by a net increase in
the change in accounts receivable, inventories and prepaid expenses of
approximately $1,582,000 and a decrease in the change in accounts
payable and accrued expenses of the periods of approximately $4,285,000
and cash used by discontinued operations of approximately $372,000.

Net cash used by investing activities decreased from $12,380,917 in the
first nine months of 2002, to cash being provided by investing activities
of $941,392 in the first nine months of 2003. Cash used to purchase a
common stock investment in Helix prior to the combination totaled
approximately $2,000,000 in January 2002. Cash used to fund a note
receivable and advances to Helix prior to the merger as of June 30, 2002
totaled approximately $9,547,000, less cash acquired in the combination
with Helix of approximately $1,162,803. Costs incurred for the Helix
acquisition during the first nine months of 2002 were approximately
$1,569,000. During the first nine months of 2003, the Company received
approximately $1,165,000 of proceeds from the sale of discontinued
operations.

Net cash provided by financing activities decreased from $10,536,012 in
the first nine months of 2002 to cash used in financing activities of
$136,860 in the first nine months of 2003. This decrease is primarily
the result of the net proceeds of $3,500,000 from the Siemens Tranche E
Loan in 2003, offset by approximately $2,189,000 in repayments under the
Siemens Tranche A, Tranche B and Tranche C loans, compared to net
proceeds of $12,625,000 from the Siemens Tranche D Loan and $1,500,000
from the 2002 private placement of common stock.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying consolidated financial statements
and related footnotes. In preparing these financial statements,
management has made its best estimates of certain amounts included in the
financial statements.On an ongoing basis, management evaluates these
estimates, including those related to allowances for doubtful accounts
receivable and sales returns. Management bases these estimates on
historical

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experience and on various other assumptions that are believed
to be reasonable under the circumstances. These estimates form the basis
for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Management believes
the following critical accounting policies affect the significant
judgments and estimates used in the preparation of the financial
statements. Application of these accounting policies involves the
exercise of judgment and use of assumptions as to future uncertainties
and, as a result, actual results could differ from these estimates.

Goodwill and Intangible Assets:

The majority of the Companys goodwill and other intangible assets
resulted from the combination with Helix. On at least an annual basis,
the Company is required to assess whether its goodwill is impaired. In
order to do this, management applied judgment in determining its
reporting units, which represent distinct parts of the Companys
business. The definition of the Companys reporting units affects the
Companys goodwill impairment assessments. The Companys annual goodwill
impairment assessment involves estimating the fair value of a reporting
unit and comparing it with its carrying amount. If the carrying value of
the reporting unit exceeds its fair value, additional steps are required
to calculate a potential impairment loss. Calculating the fair value of
the reporting units requires significant estimates and long-term
assumptions. Any changes in key assumptions about the business and its
prospects, or changes in market conditions, interest rates or other
externalities, could result in an impairment charge. The Company
estimates the fair value of its reporting units by applying a weighted
average of three methods: quoted market price, external transactions, and
discounted cash flow.

Revenue Recognition

HearUSA recognizes revenues from the sale of audiological products at the
time of delivery and revenues from hearing care services at the time
those services are performed.

The Company has capitation contracts with certain health care
organizations under which the Company is paid an amount for each enrollee
of the health maintenance organization to provide to the enrollee a once
every three years discount on certain hearing products and services. The
amount paid to the Company by the healthcare organization is calculated
on a per-capita basis and is referred to as capitation revenue. The
Company defers recognition of capitation revenue until the earlier of the
actual utilization by the member populations of the benefit, or the end
of the contract term.

Sales returns

The Company provides to all patients purchasing hearing aids a specific
return period of at least 30 days if the patient is dissatisfied with
the product. The Company provides an allowance in accrued expenses for
returns. The return period can be extended to 60 days if the patient
attends the Companys H.E.L.P. (Hearing Educational Listening Program)
program.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued SFAS, No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. This statement
amends SFAS 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
In addition, this statement amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based accounting for
employee compensation and the effect of the method used on reported
results. SFAS 148 is generally effective for financial statements for
fiscal years ending after December 15, 2002. The effect of the adoption
of SFAS 148 on the Companys financial position and results of operations
was not material as the Company continues to use the intrinsic value
method.

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In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees and Indebtedness of Others (FIN 45). FIN 45 elaborates on
the disclosures that a guarantor should make in its interim and annual
financial statements regarding its obligations relating to the issuance
of certain guarantees. It also requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition
and measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31,
2002. The impact of adopting FIN 45 on the Companys financial position
and results of operations was not material.

In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities, which clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 is applicable immediately
for variable interest entities created after January 31, 2003. For
variable interest entities created prior to January 31, 2003, the
provisions of FIN 46 are applicable no later than July 1, 2003. This
Interpretation did not have a material effect on the consolidated
financial statements of the Company.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. It is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified
as equity. This Statement did not a material effect on its consolidated
results of operations or financial position.







Except for historical information provided in this discussion and
analysis, the discussion includes forward looking statements, including
statements funds available under, current cash, cash equivalents and
revenues from operations being sufficient to support the Companys
operational needs; and the impact on cashflow of certain payments in the
fourth quarter of 2003.. 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 market demand for the companys product; the
ability to reduce operating costs, general economic and industry
conditions, especially those affecting managed health care; actions by
competitors, customers and suppliers, the impact of competitive products
and technological changes; and unforeseen cash requirements.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company does not engage in derivative transactions or issue
variable rate debt. The Company is exposed to foreign currency exchange
rates as a result of its combination with Helix, and the Company is not
hedging that exposure. Differences in the fair value of investment
securities are not material, therefore the related market risk is not
significant. The Companys exposure to market risk for changes in
interest rates relates primarily to the Companys long-term debt. The
following table presents the Companys financial instruments for which
fair value is subject to changing market interest rates:

|                                                                                              |  |                |             |           |  |           |            |            |  |             |            |          |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------------------------------- |  | -------------- | ----------- | --------- |  | --------- | ---------- | ---------- |  | ----------- | ---------- | -------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                              |  | Long-Term Debt
|                                                                                              |  | Variable       |             |           |  |           |            |            |  |             |            |          |  |   |            |   |  |  
|                                                                                              |  | Rate           |             |           |  |           |            | Fixed Rate |  |             |            |         
|                                                                                              |  | Prime rate     |             |           |  |           |            |            |  |             |            |         
|                                                                                              |  | + 1% note      |             |           |  |           |            |            |  |             |            | 10% note |  |   |            |  
|                                                                                              |  | due April      |             | 10% notes |  | 10% notes |            | due Dec 1, |  |             |            |         
|                                                                                              |  | 2007           |             | due 2008  |  | due 2007  |            | 2006       |  | Other notes
|As of September 27,
2003
Estimated cash
inflow (outflow) by
fiscal year of
principal maturity |  |                |             |           |  |           |            |            |  |             |            |          |  |   |            |   |  |   |            |  
|2003                                                                                          |  | $              | (248,000    | )         |  | $         |           |            |  | $           | (154,000   | )        |  | $ | (575,000   | ) |  | $ | (276,000   | )
|2004                                                                                          |  |                |            |           |  |           | (555,000   | )          |  |             | (616,000   | )        |  |   | (2,300,000 | ) |  |   | (689,000   | )
|2005                                                                                          |  |                |            |           |  |           | (807,000   | )          |  |             | (613,000   | )        |  |   | (2,300,000 | ) |  |   | (359,000   | )
|2006                                                                                          |  |                |            |           |  |           | (892,000   | )          |  |             | (610,000   | )        |  |   | (1,300,000 | ) |  |   | (53,000    | )
|2007                                                                                          |  | $              | (13,777,000 | )         |  |           | (985,000   | )          |  |             | (346,000   | )        |  |   |           |   |  |   | (54,000    | )
|2008                                                                                          |  |                |            |           |  |           | (261,000   | )          |  |             |           |          |  |   |           |   |  |   |           |  
|                                                                                              |  |                |             |           |  |           |            |            |  |             |            |          |  |   |            |   |  |   |            |  
|Total                                                                                         |  | $              | (14,025,000 | )         |  | $         | (3,500,000 | )          |  | $           | (2,339,000 | )        |  | $ | (6,475,000 | ) |  | $ | (1,432,000 | )
|                                                                                              |  |                |             |           |  |           |            |            |  |             |            |          |  |   |            |   |  |   |            |  
|Estimated fair value                                                                          |  | $              | (14,025,000 | )         |  | $         | (3,500,000 | )          |  | $           | (2,339,000 | )        |  | $ | (6,475,000 | ) |  | $ | (1,432,000 | )
|                                                                                              |  |                |             |           |  |           |            |            |  |             |            |          |  |   |            |   |  |   |            |  
|Carrying value                                                                                |  | $              | (13,497,000 | )         |  | $         | (3,500,000 | )          |  | $           | (2,339,000 | )        |  | $ | (6,475,000 | ) |  | $ | (1,432,000 | )
|                                                                                              |  |                |             |           |  |           |            |            |  |             |            |          |  |   |            |   |  |   |            |  

Item 4.  Controls and Procedures



| | a. |  | The Company evaluated the effectiveness of its
disclosure controls and procedures pursuant to Exchange Act
rules. Based upon that evaluation, the Companys Chief Executive
Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective, as of the end
of the period covered by this report, in timely alerting them to
material information relating to the Company required to be
included in its periodic SEC filings.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | There have been no material changes in the Companys
internal control over financial reporting or in other factors
that could significantly affect the Companys internal control
over financial reporting subsequent to the date of the evaluation
referenced above.                                                                                                                                                                                                          

22



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##### 



Part II Other Information

Item 2.  Changes in Securities and Use of Proceeds

1998 Convertible Preferred Stock

On August 27, 2003, the Company exchanged all 4,563 outstanding shares of
its 1998 Convertible Preferred Stock for 4,563 shares of a newly designated
convertible preferred stock, 1998 E Series Convertible Preferred Stock
(1998 E Convertible Preferred Stock). All 1998-E Convertible Preferred
Stock not converted or redeemed by December 18, 2006 must be redeemed by
the Company on December 18, 2006. The old 1998 Convertible Preferred Stock
was scheduled to convert by its terms into common stock on August 27, 2003.
The Company has the right to redeem the newly designated preferred stock at
its stated value plus accrued but unpaid premiums for sixteen months and
thereafter until the maturity date at 108% of its stated value plus accrued
but unpaid premiums. The Company relied on Section 4(2) as the exemption
for registration requirements of the Securities Act of 1933. The
transaction qualified as a private placement to accredited investors.

As part of the transaction, the Company has agreed that accrued but unpaid
premiums on the 1998 Convertible Preferred Stock and the newly designated
preferred stock will be paid in cash each month beginning in November 2003
and continuing until December 2006. The holders have agreed that they will
not convert the newly designated preferred stock into the Companys common
stock prior to November 1, 2005, except in the event of a default in
payment of premiums or unless on or after December 10, 2004 the price of
the common stock reaches a trading price at or above $3.00 per share and
the holders sell at or above $3.00 per share. If converted during the
period from December 10, 2004 until November 1, 2005 based on the trading
price reaching $3.00 per share, the holders can convert only a number of
                     shares of the newly designated preferred stock that would yield upon
conversion no more than 744,911 shares of HearUSA common stock.

Private Placement

On October 3, 2003, the Company completed a private placement of $2 million
in unsecured notes payable and common stock purchase warrants with a number
of investors including, three members of the Companys board of directors.
The notes bear interest at a rate of 15 percent for the first six months
and 18 percent for the second six months with principal and unpaid interest
due on maturity of October 1, 2004. The financing also included seven-year
warrants, which cannot be exercised during the first two years, to purchase
a total of 800,000 shares of the Companys common stock. The outside
lenders warrants have an exercise price of $1.25 per share while the
participating directors warrants have an exercise price of $1.31 per
share, the quoted closing price of the common stock on the day of the
financing. Proceeds from the financing were used to raise additional cash
to pay Siemens under the supply agreement. If not repaid at the end of the
one-year term, the notes and unpaid interest would convert into shares of
the Companys common stock at a rate of $0.75 per share, and the holders
will be entitled to an aggregate of 800,000 additional common stock
purchase warrants.

Item 6.  Exhibits and Reports on Form 8-K

|    |  |                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits:                                                                                                                                                                                                                                                     
|   
|2.1 |  | The Amended and Restated Merger Agreement, dated November 6, 2001, between HEARx and
Helix Hearing Care of America Corp. (incorporated herein by reference as Exhibit 2.1 to the
Companys Joint Proxy Statement/Prospectus on Form S-4 (Reg. No. 333-73022)).
|   
|2.2 |  | Interim Order issued by the Superior Court of Quebec and Notice of                                                                                                                                                                                            

23



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##### 



|     |  |                                                                                                                                                                                                                                                                                                            
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | Application (incorporated herein by reference as Exhibit 2.2 to the
Companys Joint Proxy Statement/Prospectus Form S-4 (Reg. No. 333-73022)).                                                                                                                                                             
|    
|2.3  |  | Plan of Arrangement, including exchangeable share provisions (incorporated herein by reference as 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 as 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 as 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 as 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 as 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 1998 Convertible Preferred Stock (incorporated herein
by reference as Exhibit 3 to the Companys Current Report on Form
8-K, filed August 27, 1998 (File No. 001-11655)).                                                             
|    
|3.6  |  | Certificate of Designations, Preferences and Rights of the Companys 1999 Series H Junior Participating Preferred Stock (incorporated herein by reference as Exhibit 4 to the Companys Current Report on Form 8-K, filed December 17, 1999 (File No. 001-11655)).                                         
|    
|3.7  |  | Certificate of Designations, Preferences and Rights of the Companys Special Voting  Preferred Stock  (incorporated herein
by reference as Exhibit 3.2 to the Companys Current Report on Form 8-K, filed July 19, 2002 (File No. 001-11655)).                                                             
|    
|3.8  |  | Amendment to Certificate of Designations, Preferences and Rights of
the  Companys 1999 Series H Junior Participating Preferred Stock  (incorporated herein by reference as Exhibit 4 to the Companys Current Report on Form 8-K, filed July 17, 2002 (File No. 001-11655)).                              
|    
|3.9  |  | Amendment to Certificate of Designations, Preferences and Rights of
the  Companys 1998-E Series Convertible Preferred Stock
(incorporated herein by reference as Exhibit 4.1 to the
Companys Current Report on Form 8-K, filed August 26, 2003 (File No. 001-11655)).                                    
|    
|3.10 |  | Amended and Restated By-Laws of HearUSA, Inc. (incorporated by
reference as Exhibit 3.9 to the Companys Annual Report on Form 10-K                                                                                                                                                                        

24



---



##### 



|     |  |                                                                                                                                                                                                                                                                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | for the period ended December 28, 2002 (File No. 001-11655)).                                                                                                                                                                                                                                                                                                                                
|    
|4.1  |  | Form of Placement Agent Warrant (to purchase up to 1,125,000 shares
of Common Stock at an exercise price equal to $1.80 per share)
(incorporated herein by reference as Exhibit 4.3 to the
Companys Current Report on Form 8-K, filed August 27, 1998 (Registration No. 001-11655)).                                                                                                        
|    
|4.2  |  | Form of Placement Agent Warrant (to purchase up to 203,390 shares of
Common Stock at an exercise price equal to $4.46 per share)
(incorporated herein by reference as Exhibit 4.3 to the
Companys Current Report on Form 8-K, filed May 9, 2000 (Registration No. 001-11655)).                                                                                                              
|    
|4.3  |  | Exchange and Redemption Agreement, dated as of December 4, 2001, by
and between HEARx Ltd. and Advantage Fund II Ltd. (incorporated
herein by reference as Exhibit 10.1 to the Companys Current
Report on Form 8-K, filed December 26, 2001 (Registration No. 001-11655)).                                                                                                                  
|    
|4.4  |  | Amended and Restated Rights Agreement, dated July 11, 2002 between
HEARx Ltd.  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 as Exhibit 4.9.1 to the Companys Joint Proxy/Prospectus on Form S-4 (Reg. No. 333-73022)).
|    
|4.5  |  | Form of Support Agreement among HEARx Ltd., HEARx Canada, Inc. and
HEARx Acquisition ULC (incorporated herein by reference as Exhibit
99.3 to the Companys Joint Proxy Statement/Prospectus on Form S-4 (Reg No. 333-73022)).                                                                                                                                                               
|    
|10.1 |  | Amendment to Credit Agreement, dated March 12,2003 between HearUSA,
Inc. and Siemens Hearing Instruments, Inc. (incorporated herein by
reference as Exhibit 10.1 to the Companys Form 10Q for the period ended March 29, 2003.)                                                                                                                                                             
|    
|10.2 |  | Amendment to Security Agreement, dated March 12, 2003 between
HearUSA, Inc. and Siemens Hearing Instruments, Inc. (incorporated
herein by reference as Exhibit 10.2 to the Companys Form 10Q for the period ended March 29, 2003.)                                                                                                                                                          
|    
|10.3 |  | Exchange Agreement, dated August 26, 2003 between HearUSA, Inc.,
Zanett Lombardier Master Fund, LLC and The San Miguel Trust
(incorporated herein by reference as Exhibit 10.1 to the Companys Form 8-K, filed August 26, 2003 (File No. 001-11655)).                                                                                                                                       
|    
|31.1 |  | CEO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                
|    
|31.2 |  | CFO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                
|    
|32   |  | CEO and CFO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                        

25



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##### 



|    |  |                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Reports on Form 8-K:                                                                                                                        
|   
|    |  | An Item 5 and 7 current report on Form 8-K, dated July 15, 2003, was filed with the Securities and Exchange Commission on July 24, 2003.    
|   
|    |  | An Item 7 and 12 current report on Form 8-K, dated August 5, 2003,
was filed with the Securities and Exchange Commission on August 11, 2003.
|   
|    |  | An Item 5 and 7 current report on Form 8-K, dated August 26, 2003,
was filed with the Securities and Exchange Commission on August 28, 2003.

26



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##### 



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.

HearUSA, Inc.
(Registrant)

|                        |  |                                                                             
|----------------------- |  | ----------------------------------------------------------------------------
|Date: November 12, 2003 |  | By: /s/ Stephen J. Hansbrough

Stephen J. Hansbrough
Chief Executive Officer
|                       
|Date: November 12, 2003 |  | By:/s/ Gino Chouinard

Gino Chouinard
Chief Financial Officer               

27



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##### 



Exhibit Index

|     |  |                                                         
|---- |  | --------------------------------------------------------
|31.1 |  | Section 302 of Sarbanes-Oxley CEO Certification         
|31.2 |  | Section 302 of Sarbanes-Oxley CFO Certification         
|32   |  | Section 906 of Sarbanes-Oxley CEO  and CFO Certification

28