##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period endedSeptember 27, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-11655
 HearUSA, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    22-2748248(State of Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)1250 Northpoint Parkway, West Palm Beach, Florida
    
    33407(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants Telephone Number, Including Area Code (561) 478-8770
 Former Name, Former Address and Former Fiscal Year,
 if Changed Since Last Report
 Indicate by check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, and accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange act. (Check one):
 Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filerþ
    
    Smaller reporting Company o
 Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act). Yes o No þ
 On November 6, 2008, 37,918,254 shares of the Registrants Common Stock and 506,661 exchangeable
shares of HEARx Canada, Inc. were outstanding.




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##### 



INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets
September 27, 2008 and December 29, 2007
    
    
    3Consolidated Statements of Operations 
Nine months ended September 27, 2008 and September 29, 2007
    
    
    4Consolidated Statements of Operations 
Three months ended September 27, 2008 and September 29, 2007
    
    
    5Consolidated Statements of Cash Flows 
Nine months ended September 27, 2008 and September 29, 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONItem 1A.
Risk Factors
    
    
    37Item 6. Exhibits
    
    
    38Signatures
    
    
    40Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32




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##### Table of Contents



Part I  Financial Information
 
 Item 1. Financial Statements
 HearUSA, Inc.
 
 Consolidated Balance Sheets
(unaudited)
 September 27,
    
    
    December 29,2008
    
    
    2007(Dollars in thousands)ASSETS (Note 4)Current assetsCash and cash equivalents
    
    $
    3,546
    
    
    $
    3,369Accounts and notes receivable, less allowance for
doubtful accounts of $503,000 and $498,000
    
    
    8,848
    
    
    
    8,825Inventories
    
    
    2,814
    
    
    
    2,441Prepaid expenses and other
    
    
    1,238
    
    
    
    1,283Deferred tax asset
    
    
    62
    
    
    
    62Total current assets
    
    
    16,508
    
    
    
    15,980Property and equipment, net (Note 2)
    
    
    4,896
    
    
    
    4,356Goodwill (Note 2)
    
    
    68,405
    
    
    
    63,134Intangible assets, net (Note 2 and 3)
    
    
    35,378
    
    
    
    16,165Deposits and other
    
    
    819
    
    
    
    691Restricted cash and cash equivalents
    
    
    216
    
    
    
    216Total Assets
    
    $
    126,222
    
    
    $
    100,542LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    15,051
    
    
    $
    12,467Accrued expenses
    
    
    3,060
    
    
    
    2,523Accrued salaries and other compensation
    
    
    3,572
    
    
    
    3,521Current maturities of long-term debt
    
    
    19,350
    
    
    
    10,746Current maturities of subordinated notes, net of
debt discount of $60,000 in 2007
    
    
    
    
    
    
    1,480Dividends payable
    
    
    34
    
    
    
    34Minority interest in net income of consolidated joint venture, currently payable
    
    
    1,636
    
    
    
    1,221Total current liabilities
    
    
    42,703
    
    
    
    31,992Long-term debt (Notes 4 and 7)
    
    
    50,177
    
    
    
    36,499Deferred income taxes
    
    
    7,299
    
    
    
    6,462Total long-term liabilities
    
    
    57,476
    
    
    
    42,961Commitments and contingenciesStockholders equity (Note 8)Preferred stock (aggregate liquidation preference $2,330,000, $1 par,
7,500,000 shares authorized)Series H Junior Participating (none outstanding)
    
    
    
    
    
    
    Series J (233 shares outstanding)
    
    
    
    
    
    
    Total preferred stock
    
    
    
    
    
    
    Common stock: $0.10 par; 75,000,000 shares authorized 38,424,915 and 38,325,414 shares issued
    
    
    3,842
    
    
    
    3,833Stock subscription
    
    
    
    
    
    
    (412
    )Additional paid-in capital
    
    
    133,624
    
    
    
    133,261Accumulated deficit
    
    
    (113,589
    )
    
    
    (113,076
    )Accumulated other comprehensive income
    
    
    4,651
    
    
    
    4,468Treasury stock, at cost: 523,662 common shares
    
    
    (2,485
    )
    
    
    (2,485
    )Total Stockholders Equity
    
    
    26,043
    
    
    
    25,589Total Liabilities and Stockholders Equity
    
    $
    126,222
    
    
    $
    100,542
 See accompanying notes to consolidated financial statements.
  3




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HearUSA, Inc
 
 Consolidated Statements of Operations
Nine Months Ended September 27, 2008 and September 29, 2007
(unaudited)
 September 27,
    
    
    September 29,2008
    
    
    2007(Dollars in thousands, except pershare amounts)Net revenuesHearing aids and other products
    
    $
    81,640
    
    
    $
    70,107Services
    
    
    5,890
    
    
    
    5,178Total net revenues
    
    
    87,530
    
    
    
    75,285Operating costs and expensesHearing aids and other products (Note 4)
    
    
    23,541
    
    
    
    18,576Services
    
    
    1,793
    
    
    
    1,531Total cost of products sold and services
    
    
    25,334
    
    
    
    20,107Center operating expenses
    
    
    42,999
    
    
    
    37,316General and administrative expenses (Notes 1 and 8)
    
    
    11,664
    
    
    
    11,306Depreciation and amortization
    
    
    1,922
    
    
    
    1,597Total operating costs and expenses
    
    
    81,919
    
    
    
    70,326Income from operations
    
    
    5,611
    
    
    
    4,959Non-operating income (expense):Interest income
    
    
    29
    
    
    
    106Interest expense (Notes 2, 3, 4, 5 and 6)
    
    
    (4,060
    )
    
    
    (6,707
    )Income (loss) from continuing operations before income tax expense and minority
interest in income of consolidated joint venture
    
    
    1,580
    
    
    
    (1,642
    )Income tax expense
    
    
    (815
    )
    
    
    (634
    )Minority interest in income of consolidated joint venture
    
    
    (1,174
    )
    
    
    (1,077
    )Net loss
    
    
    (409
    )
    
    
    (3,353
    )Dividends on preferred stock
    
    
    (104
    )
    
    
    (103
    )Net loss applicable to common stockholders
    
    $
    (513
    )
    
    $
    (3,456
    )Net loss applicable to common stockholders per common share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.10
    )Weighted average number of shares of common stock outstanding  basic and diluted
    
    
    38,501
    
    
    
    35,860
 See accompanying notes to consolidated financial statements.
  4




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HearUSA, Inc.
 
 Consolidated Statements of Operations
Three Months Ended September 27, 2008 and September 29, 2007
(unaudited)
 September 27,
    
    
    September 29,2008
    
    
    2007(Dollars in thousands, except pershare amounts)Net revenuesHearing aids and other products
    
    $
    26,740
    
    
    $
    25,050Services
    
    
    1,977
    
    
    
    1,812Total net revenues
    
    
    28,717
    
    
    
    26,862Operating costs and expensesHearing aids and other products (Note 4)
    
    
    7,448
    
    
    
    6,807Services
    
    
    638
    
    
    
    499Total cost of products sold and services
    
    
    8,086
    
    
    
    7,306Center operating expenses
    
    
    14,424
    
    
    
    12,585General and administrative expenses (Notes 1 and 8)
    
    
    3,275
    
    
    
    3,890Depreciation and amortization
    
    
    635
    
    
    
    572Total operating costs and expenses
    
    
    26,420
    
    
    
    24,353Income from operations
    
    
    2,297
    
    
    
    2,509Non-operating income (expense):Interest income
    
    
    7
    
    
    
    21Interest expense (Notes 2, 3, 4, 5 and 6)
    
    
    (1,566
    )
    
    
    (1,330
    )Income from continuing operations before income tax expense and minority
interest in income of consolidated joint venture
    
    
    738
    
    
    
    1,200Income tax expense
    
    
    (296
    )
    
    
    (284
    )Minority interest in income of consolidated joint venture
    
    
    (482
    )
    
    
    (394
    )Net income (loss)
    
    
    (40
    )
    
    
    522Dividends on preferred stock
    
    
    (35
    )
    
    
    (34
    )Net income (loss) applicable to common stockholders
    
    $
    (75
    )
    
    $
    488Net income (loss) applicable to common stockholders per common share  basic
    
    $
    (0.00
    )
    
    $
    0.01Net income (loss) applicable to common stockholders per common share  diluted
    
    $
    (0.00
    )
    
    $
    0.01Weighted average number of shares of common stock outstanding  basic
    
    
    38,408
    
    
    
    37,950Weighted average number of shares of common stock outstanding diluted
    
    
    38,408
    
    
    
    46,415
 See accompanying notes to consolidated financial statements.
  5




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HearUSA, Inc.
 
 Consolidated Statements of Cash Flows
Nine Months Ended September 27, 2008 and September 29, 2007
(unaudited)
 September 27,
    
    
    September 29,2008
    
    
    2007(Dollars in thousands)Cash flows from operating activitiesNet loss
    
    $
    (409
    )
    
    $
    (3,353
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Debt discount amortization
    
    
    192
    
    
    
    1,958Interest on reduction of warrant exercise price
    
    
    
    
    
    
    1,371Depreciation and amortization
    
    
    1,922
    
    
    
    1,597Employee and director stock-based compensation
    
    
    607
    
    
    
    386Provision for doubtful accounts
    
    
    396
    
    
    
    372Minority interest in income of Joint Venture
    
    
    1,174
    
    
    
    1,077Deferred income tax expense
    
    
    815
    
    
    
    625Interest on discounted notes payable
    
    
    355
    
    
    
    Interest on discounted long-term contractual commitment to AARP
    
    
    260
    
    
    
    Consulting stock-based compensation
    
    
    33
    
    
    
    128Loss on disposition of property and equipment
    
    
    70
    
    
    
    Principal payments on long-term debt made through rebate credits
    
    
    (2,996
    )
    
    
    (3,521
    )Other
    
    
    (200
    )
    
    
    (2
    )(Increase) decrease in:Accounts and notes receivable
    
    
    (453
    )
    
    
    (1,273
    )Inventories
    
    
    (342
    )
    
    
    202Prepaid expenses and other
    
    
    (44
    )
    
    
    501Increase in:Accounts payable and accrued expenses
    
    
    5,886
    
    
    
    485Accrued salaries and other compensation
    
    
    41
    
    
    
    212Net cash provided by operating activities
    
    
    7,307
    
    
    
    765Cash flows from investing activitiesPurchase of property and equipment
    
    
    (1,192
    )
    
    
    (551
    )Business acquisitions
    
    
    (3,551
    )
    
    
    (3,844
    )Net cash used in investing activities
    
    
    (4,743
    )
    
    
    (4,395
    )Cash flows from financing activitiesProceeds from issuance of long-term debt
    
    
    3,408
    
    
    
    8,891Principal payments on long-term debt
    
    
    (3,620
    )
    
    
    (2,728
    )Principal payments on convertible subordinated notes
    
    
    
    
    
    
    (784
    )Principal payments on subordinated notes
    
    
    (1,540
    )
    
    
    (1,320
    )Proceeds from the exercise of warrants
    
    
    
    
    
    
    1,734Proceeds from the exercise of employee options
    
    
    146
    
    
    
    17Dividends paid on preferred stock
    
    
    (104
    )
    
    
    (103
    )Distributions paid to minority interest
    
    
    (759
    )
    
    
    (890
    )Net cash provided by (used in) financing activities
    
    
    (2,469
    )
    
    
    4,817Effects of exchange rate changes on cash
    
    
    82
    
    
    
    13Net increase in cash and cash equivalents
    
    
    177
    
    
    
    1,200Cash and cash equivalents at the beginning of period
    
    
    3,369
    
    
    
    2,326Cash and cash equivalents at the end of period
    
    $
    3,546
    
    
    $
    3,526Supplemental disclosure of cash flows information:Cash paid for interest
    
    $
    647
    
    
    $
    1,169Supplemental schedule of non-cash investing and financing activities:Principal payments on long-term debt made through rebate credits
    
    $
    (2,996
    )
    
    $
    (3,521
    )Issuance of notes payable in exchange for business acquisitions
    
    $
    2,976
    
    
    $
    3,540Long-term contractual commitment to AARP in exchange for intellectual property
    
    $
    19,533
    
    
    $
    Issuance of capital lease in exchange for property and equipment
    
    $
    223
    
    
    $
    416Purchase of equipment with volume discount credit
    
    $
    200
    
    
    $
    Conversion of accounts payable to notes payable
    
    $
    2,843
    
    
    $
    
 See accompanying notes to consolidated financial statements.
  6




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HearUSA, Inc.
 
 Notes to Consolidated Financial Statements
  1.
    
    Description of the Company and Summary of Significant Accounting Policies
 The Company
  Basis of Consolidation
  Net income (loss) applicable to common stockholders per common share
    7




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HearUSA, Inc.
Notes to Consolidated Financial Statements
 Comprehensive income (loss)
  Nine Months Ended
    
    
    Three Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,Dollars in thousands
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss) for the period,
applicable to common stockholders
    
    $
    (513
    )
    
    $
    (3,456
    )
    
    $
    (75
    )
    
    $
    488Foreign currency translation adjustments
    
    
    (183
    )
    
    
    2,012
    
    
    
    (319
    )
    
    
    915Comprehensive income (loss) for the period
    
    $
    (696
    )
    
    $
    (1,444
    )
    
    $
    (394
    )
    
    $
    1,403
 2.
    
    Business Acquisitions
    Nine Months Ended
    
    
    Three Months EndedDollars in thousands, except per share amounts
    
    September 27, 2008
    
    
    September 27, 2008Total revenue
    
    $
    89,266
    
    
    $
    29,331Net income (loss) applicable to common stockholders
    
    $
    (369
    )
    
    $
    (35
    )Net income (loss) applicable to common stockholders per share  basic
    
    $
    (0.01
    )
    
    $
    (0.00
    )Net income (loss ) applicable to common stockholders per share diluted
    
    $
    (0.01
    )
    
    $
    (0.00
    )
 3.
    
    Intangible- AARP License Agreement (Note 4)
   8




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
    4.
    
    Long-term Debt (Notes 5 and 6)
  September 27,
    
    
    December 29,Dollars in thousands
    
    2008
    
    
    2007Notes payable to Siemens
Tranche B
    
    $
    5,268
    
    
    $
    5,403Tranche C
    
    
    23,685
    
    
    
    23,670Tranche D
    
    
    8,361
    
    
    
    7,895Tranche E
    
    
    2,907
    
    
    
    Total notes payable to Siemens
    
    
    40,221
    
    
    
    36,968Long-term contractual commitment to AARP
    
    
    19,533
    
    
    
    Notes payable from business acquisitions and other
    
    
    9,773
    
    
    
    10,27769,527
    
    
    
    47,245Less current maturities
    
    
    19,350
    
    
    
    10,746$
    50,177
    
    
    $
    36,499
   Total
    
    
    Siemens
    
    
    AARP
    
    
    Other2009
    
    $
    19,350
    
    
    $
    9,490
    
    
    $
    5,857
    
    
    $
    4,0032010
    
    
    12,118
    
    
    
    2,382
    
    
    
    6,499
    
    
    
    3,2372011
    
    
    11,310
    
    
    
    2,382
    
    
    
    7,177
    
    
    
    1,7512012
    
    
    3,122
    
    
    
    2,361
    
    
    
    
    
    
    
    7612013
    
    
    23,627
    
    
    
    23,606
    
    
    
    
    
    
    
    21
  9




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
 Notes payable to Siemens
        Rebate credits on product sales
   10




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
    Nine Months Ended
    
    
    Three Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,Dollars in thousands
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Portion applied against quarterly principal payments
    
    $
    2,996
    
    
    $
    3,521
    
    
    $
    1,017
    
    
    $
    1,183Portion applied against quarterly interest payments
    
    
    2,104
    
    
    
    2,006
    
    
    
    716
    
    
    
    688$
    5,100
    
    
    $
    5,527
    
    
    $
    1,733
    
    
    $
    1,871
 Conversion rights
   Covenants
   11




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
 Long-term contractual commitment to AARP
  Notes payable from business acquisitions and other
  5.
    
    Convertible Subordinated Notes
   6.
    
    Subordinated Notes and Warrant Liability
    12




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
   7.
    
    Fair Value
    Level 1-
    
    Quoted prices (unadjusted) in active markets for identical assets or liabilities;
 Level 2-
    
    Inputs other than quoted prices included in Level 1 that are either directly or
indirectly observable;
 Level 3-
    
    Unobservable inputs in which little or no market activity exists, therefore
requiring an entity to develop its own assumptions about the assumptions that
market participants would use in pricing.
    13




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
 8.
    
    Stockholders Equity
 A.
    
    Common Stock
  B.
    
    Stock Subscription
  9.
    
    Stock-based Compensation
  
  14




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HearUSA, Inc.
Notes to Consolidated Financial Statements
 Stock-based payment award activity
  WeightedAverageRemainingWeighted
    
    
    ContractualAverage
    
    
    Term
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    (in years)
    
    
    Intrinsic ValueOutstanding at December 29, 2007
    
    
    5,158
    
    
    $
    1.28
    
    
    
    
    
    
    
    Granted
    
    
    970
    
    
    $
    1.67Exercised
    
    
    (210
    )
    
    $
    0.69
    
    
    
    
    
    
    $
    143Forfeited/expired/cancelled
    
    
    (490
    )
    
    
    2.07
    
    
    
    
    
    
    
    Outstanding at September 27, 2008
    
    
    5,428
    
    
    $
    1.30
    
    
    
    6.41
    
    
    $
    1,003Exercisable at September 27, 2008
    
    
    3,773
    
    
    $
    1.18
    
    
    
    5.14
    
    
    $
    1,002
   WeightedAverageGrant-DateShares
    
    
    Fair ValueNon-vested at December 29, 2007
    
    
    1,460
    
    
    $
    1.44Granted
    
    
    970
    
    
    $
    1.67Vested
    
    
    (775
    )
    
    $
    1.42Forfeited unvested
    
    
    
    
    
    
    Non-vested at September 27, 2008
    
    
    1,655
    
    
    $
    1.58
 Restricted stock units
   15




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
  Restricted Stock Units (1)Outstanding at December 29, 2007
    
    
    Awarded
    
    
    482,000Vested
    
    
    Cancelled
    
    
    Outstanding at September 27, 2008
    
    
    482,000
 (1)
    
    Each stock unit represents the one share of common stock.   10.
    
    Segments
   16




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
  Dollars in thousands
    
    Centers
    
    
    E-commerce
    
    
    Network
    
    
    Corporate
    
    
    TotalHearing aids and other product revenues9 months ended
September 27, 2008
    
    $
    81,560
    
    
    $
    80
    
    
    
    
    
    
    
    
    
    
    $
    81,6409 months ended
September 29, 2007
    
    $
    70,019
    
    
    $
    88
    
    
    
    
    
    
    
    
    
    
    $
    70,107Service revenues9 months ended
September 27, 2008
    
    $
    4,396
    
    
    $
    
    
    
    $
    1,494
    
    
    
    
    
    
    $
    5,8909 months ended
September 29, 2007
    
    $
    3,996
    
    
    $
    
    
    
    $
    1,182
    
    
    
    
    
    
    $
    5,178Income (loss) from operations9 months ended
September 27, 2008
    
    $
    16,871
    
    
    $
    (115
    )
    
    $
    850
    
    
    $
    (11,995
    )
    
    $
    5,6119 months ended
September 29, 2007
    
    $
    15,741
    
    
    $
    (30
    )
    
    $
    826
    
    
    $
    (11,578
    )
    
    $
    4,9599 months ended
September 27, 2008Depreciation and
amortization
    
    $
    1,591
    
    
    
    
    
    
    $
    
    
    
    $
    331
    
    
    $
    1,922Total assets
    
    $
    67,963
    
    
    
    
    
    
    $
    20,193
    
    
    $
    38,066
    
    
    $
    126,222Capital expenditures
    
    $
    1,080
    
    
    
    
    
    
    
    
    
    
    $
    112
    
    
    $
    1,1929 months ended
September 29, 2007Depreciation and
amortization
    
    $
    1,325
    
    
    
    
    
    
    $
    39
    
    
    $
    233
    
    
    $
    1.597Total assets
    
    $
    75,520
    
    
    
    
    
    
    $
    923
    
    
    $
    17,528
    
    
    $
    93,971Capital expenditures
    
    $
    460
    
    
    
    
    
    
    
    
    
    
    $
    91
    
    
    $
    551
  Nine months endedSeptember 27,
    
    
    September 29,2008
    
    
    2007Hearing aid revenues
    
    
    95.5
    %
    
    
    95.4
    %Other product revenues
    
    
    4.5
    %
    
    
    4.6
    %
  Nine months endedSeptember 27,
    
    
    September 29,2008
    
    
    2007Hearing aid repairs
    
    
    47.6
    %
    
    
    49.5
    %Testing and other income
    
    
    52.4
    %
    
    
    50.5
    %
  17




---



##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
  Nine months endedSeptember 27,
    
    
    September 29,Dollars in thousands
    
    2008
    
    
    2007General and administrative expense
    
    $
    11,664
    
    
    $
    11,306Corporate depreciation and
amortization
    
    
    331
    
    
    
    272Corporate loss from operations
    
    $
    11,995
    
    
    $
    11,578
   United States
    
    
    Canada
    
    
    United States
    
    
    CanadaDollars in thousands
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007Hearing aid and
other products
revenues
    
    $
    69,241
    
    
    $
    12,399
    
    
    $
    61,097
    
    
    $
    9,010Service revenues
    
    
    5,389
    
    
    
    501
    
    
    
    4,768
    
    
    
    410Long-lived assets
    
    
    61,059
    
    
    
    13,278
    
    
    
    50,867
    
    
    
    11,688Total assets
    
    
    105,796
    
    
    
    20,426
    
    
    
    75,323
    
    
    
    18,648
 11.
    
    Liquidity
     18




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##### Table of Contents



HearUSA, Inc.
Notes to Consolidated Financial Statements
 RECENT ACCOUNTING PRONOUNCEMENTS
  ,
    
  19




---



##### Table of Contents



Forward Looking Statements
 This Form 10-Q and, in particular, this managements discussion and analysis contain or incorporate
a number of forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Act of 1934. These statements include those relating to the
Companys belief that its current cash and cash equivalents and cash flow from operations at
current net revenue levels will be sufficient to support the Companys operational needs through
the next twelve months; expectation that in the remainder of 2008 the total cost of products sold
before the Siemens rebate credits as a percentage of total net revenues will be consistent with the
first nine months of 2008; expectation that sales will continue to suffer for the short term in light of general
economic conditions and hope that changes in product mix planned by the Company will stimulate appointments
and result in sales; expectation that quarterly center operating expenses will continue to
increase in total dollars in 2008; and expectation that funds will continue to be used for
acquisitions in 2008 from the Siemens line of credit. These forward-looking statements are based
on current expectations, estimates, forecasts and projections about the industry and markets in
which we operate and managements beliefs and assumptions. Any statements that are not statements
of historical fact should be considered forward-looking statements and should be read in
conjunction with our consolidated financial statements and notes to the consolidated financial
statements included in this report. The statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult to predict, the Companys
ability to maintain sales levels of acquired centers; successful implementation of the acquisition
program and integration of acquired centers; the Companys ability to decrease expenses, maintain
until sales of Siemens products and meet all debt and trade payables as they become due; market
demand for the Companys products and services; changes in the product pricing environment; and
general economic conditions in these regions where the Companys centers are located; and those
risks described in the Companys annual report on Form 10-K for fiscal 2007 filed with the
Securities and Exchange Commission.
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 GENERAL
  RESULTS OF OPERATIONS
 For the three months ended September 27, 2008 and September 29, 2007
 Revenues
 Dollars in thousands
    
    2008
    
    
    2007
    
    
    Change
    
    
    % ChangeHearing aids and other products
    
    $
    26,740
    
    
    $
    25,050
    
    
    $
    1,690
    
    
    
    6.7
    %Services
    
    
    1,977
    
    
    
    1,812
    
    
    
    165
    
    
    
    9.1
    %Total net revenues
    
    $
    28,717
    
    
    $
    26,862
    
    
    $
    1,855
    
    
    
    6.9
    %
 2008
    
    
    2007
    
    
    Change
    
    
    % Change (3)Revenues from centers acquired in 2007 (1)
    
    $
    1,194
    
    
    $
    
    
    
    $
    1,194
    
    
    
    4.4
    %Revenues from centers acquired in 2008
    
    
    1,261
    
    
    
    
    
    
    
    1,261
    
    
    
    4.7
    %Revenues from acquired centers
    
    
    2,455
    
    
    
    
    
    
    
    2,455
    
    
    
    9.1
    %Revenues from comparable centers (2)
    
    
    26,262
    
    
    
    26,862
    
    
    
    (600
    )
    
    
    (2.2
    )%Total net revenues
    
    $
    28,717
    
    
    $
    26,862
    
    
    $
    1,855
    
    
    
    6.9
    %
 (1)
    
    Represents that portion of revenues from the 2007 acquired centers recognized for those
acquisitions that had less than one full year of revenues recorded in 2007 due to the
timing of their acquisition.(2)
    
    Also includes revenues from the network business segment as well as the impact of
fluctuation of the Canadian exchange rate.(3)
    
    The revenues from acquired centers percentage changes are calculated by dividing those
revenues by the total of 2007 total net revenues.  20




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##### Table of Contents



Cost of Products Sold and Services
 Dollars in thousands
    
    2008
    
    
    2007
    
    
    Change
    
    
    %Hearing aids and other products
    
    $
    7,448
    
    
    $
    6,807
    
    
    $
    641
    
    
    
    9.4
    %Services
    
    
    638
    
    
    
    499
    
    
    
    139
    
    
    
    27.9
    %Total cost of products sold and services
    
    $
    8,086
    
    
    $
    7,306
    
    
    $
    780
    
    
    
    10.7
    %Percent of total net revenues
    
    
    28.2
    %
    
    
    27.2
    %
    
    
    1.0
    %
    
    
    3.7
    %
  2008
    
    
    2007
    
    
    Change
    
    
    %Base required payments on Tranche C forgiven
    
    $
    813
    
    
    $
    1,043
    
    
    $
    (230
    )
    
    
    (22.1
    )%Required payments of $65 per Siemens unit
from acquired centers on Tranche B forgiven
    
    
    204
    
    
    
    140
    
    
    
    64
    
    
    
    45.7
    %Interest expense on Tranches B and C forgiven
    
    
    716
    
    
    
    688
    
    
    
    28
    
    
    
    4.1
    %Total rebate credits
    
    $
    1,733
    
    
    $
    1,871
    
    
    $
    (138
    )
    
    
    (7.4
    )%Percent of total net revenues
    
    
    6.0
    %
    
    
    7.0
    %
    
    
    (1.0
    )%
    
    
    (14.3
    )%
  Expenses
 Dollars in thousands
    
    2008
    
    
    2007
    
    
    Change
    
    
    %Center operating expenses
    
    $
    14,424
    
    
    $
    12,585
    
    
    $
    1,839
    
    
    
    14.6
    %Percent of total net revenues
    
    
    50.2
    %
    
    
    46.9
    %
    
    
    3.3
    %
    
    
    7.0
    %General and administrative expenses
    
    $
    3,275
    
    
    $
    3,890
    
    
    $
    (615
    )
    
    
    (15.8
    )%Percent of total net revenues
    
    
    11.4
    %
    
    
    14.5
    %
    
    
    (3.1
    )%
    
    
    (21.4
    )%Depreciation and amortization
    
    $
    635
    
    
    $
    572
    
    
    $
    63
    
    
    
    11.0
    %Percent of total net revenues
    
    
    2.2
    %
    
    
    2.1
    %
    
    
    0.1
    %
    
    
    4.8
    %
  21




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##### Table of Contents



Interest Expense
 Dollars in thousands
    
    2008
    
    
    2007
    
    
    Change
    
    
    %Notes payable from business acquisitions and others (1)
    
    $
    262
    
    
    $
    137
    
    
    $
    125
    
    
    
    91.2
    %Long-term contractual commitment to AARP (2)
    
    
    260
    
    
    
    
    
    
    
    260
    
    
    
    100.0
    %Siemens Tranches B and C  interest forgiven (3)
    
    
    716
    
    
    
    688
    
    
    
    28
    
    
    
    4.1
    %Siemens Tranches D and E
    
    
    289
    
    
    
    335
    
    
    
    (46
    )
    
    
    (13.7
    )%2005 Subordinated Notes (4)
    
    
    39
    
    
    
    170
    
    
    
    (131
    )
    
    
    (77.1
    )%Total interest expense
    
    $
    1,566
    
    
    $
    1,330
    
    
    $
    236
    
    
    
    17.7
    %
 2008
    
    
    2007
    
    
    Change
    
    
    %Total cash interest expense (5)
    
    $
    494
    
    
    $
    529
    
    
    $
    (35
    )
    
    
    (6.6
    )%Total non-cash interest expense (6)
    
    
    1,072
    
    
    
    801
    
    
    
    271
    
    
    
    33.8
    %Total interest expense
    
    $
    1,566
    
    
    $
    1,330
    
    
    $
    236
    
    
    
    17.7
    %
 (1)
    
    Includes $84,000 in 2008 of non-cash interest expense related to recording of notes at their
present value by discounting future payments to market rate of interest (see Note 4 
Long-term Debt, Notes to Consolidated Financial Statements included herein).(2)
    
    Includes $260,000 in 2008 of non-cash interest expense related to the recording of long-term
contractual commitment to AARP at its present value by discounting future payments to market
rate of interest (see Note 4  Long-term Debt, Notes to Consolidated Financial Statements
included herein).(3)
    
    The interest expense on Tranches B and C is forgiven by Siemens as long as the minimum
purchase requirements are met and a corresponding rebate credit is recorded as a reduction of
cost of products sold (see Note 4  Long-term Debt, Notes to Consolidated Financial Statements
included herein and Liquidity and Capital Resources, below).(4)
    
    Includes $12,000 in 2008 and $113,000 in 2007 of non-cash debt discount amortization (see
Note 6  Subordinated Notes and Warrant Liability, Notes to Consolidated Financial Statements
included herein).(5)
    
    Represents the sum of the cash interest portion paid on the notes payable for business
acquisitions and others, the cash interest paid to Siemens on the Siemens Tranches D and E
loans, Subordinated Notes and the cash portion paid on the Convertible Subordinated in 2007.(6)
    
    Represents the sum of the non-cash interest expense related to recording the notes payable
for business acquisitions at their present value by discounting future payments to market rate
of interest, long-term contractual commitment to AARP at its present value by discounting
future payments to market rate of interest, Tranches B and C, the non-cash interest imputed to
the 2005 Subordinated Notes and the 2003 Convertible Subordinated Notes in 2007 related to the
debt discount amortization.  22




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##### Table of Contents



Income Taxes
   Minority Interest
  For the nine months ended September 27, 2008 and September 29, 2007
 Revenues
 Dollars in thousands
    
    2008
    
    
    2007
    
    
    Change
    
    
    % ChangeHearing aids and other products
    
    $
    81,640
    
    
    $
    70,107
    
    
    $
    11,533
    
    
    
    16.5
    %Services
    
    
    5,890
    
    
    
    5,178
    
    
    
    712
    
    
    
    13.8
    %Total net revenues
    
    $
    87,530
    
    
    $
    75,285
    
    
    $
    12,245
    
    
    
    16.3
    %
 2008
    
    
    2007
    
    
    Change
    
    
    % Change (3)Revenues from centers acquired in 2007 (1)
    
    $
    6,027
    
    
    $
    
    
    
    $
    6,027
    
    
    
    8.0
    %Revenues from centers acquired in 2008
    
    
    2,004
    
    
    
    
    
    
    
    2,004
    
    
    
    2.7
    %Revenues from acquired centers
    
    
    8,031
    
    
    
    
    
    
    
    8,031
    
    
    
    10.7
    %Revenues from comparable centers (2)
    
    
    79,499
    
    
    
    75,285
    
    
    
    4,214
    
    
    
    5.6
    %Total net revenues
    
    $
    87,530
    
    
    $
    75,285
    
    
    $
    12,245
    
    
    
    16.3
    %
 (1)
    
    Represents that portion of revenues from the 2007 acquired centers recognized for those
acquisitions that had less than one full year of revenues recorded in 2007 due to the
timing of their acquisition.(2)
    
    Also includes revenues from the network business segment as well as the impact of
fluctuation of the Canadian exchange rate.(3)
    
    The revenues from acquired centers percentage changes are calculated by dividing those
revenues by the total of 2007 net revenues.    23




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##### Table of Contents



Cost of Products Sold and Services
 Dollars in thousands
    
    2008
    
    
    2007
    
    
    Change
    
    
    %Hearing aids and other products
    
    $
    23,541
    
    
    $
    18,576
    
    
    $
    4,965
    
    
    
    26.7
    %Services
    
    
    1,793
    
    
    
    1,531
    
    
    
    262
    
    
    
    17.1
    %Total cost of products sold and services
    
    $
    25,334
    
    
    $
    20,107
    
    
    $
    5,227
    
    
    
    26.0
    %Percent of total net revenues
    
    
    28.9
    %
    
    
    26.7
    %
    
    
    2.2
    %
    
    
    8.2
    %
  2008
    
    
    2007
    
    
    Change
    
    
    %Base required payments on Tranche C forgiven
    
    $
    2,443
    
    
    $
    3,127
    
    
    $
    (684
    )
    
    
    (21.9
    )%Required payments of $65 per Siemens unit
from acquired centers on Tranche B forgiven
    
    
    553
    
    
    
    394
    
    
    
    159
    
    
    
    40.4
    %Interest expense on Tranches B and C forgiven
    
    
    2,104
    
    
    
    2,006
    
    
    
    98
    
    
    
    4.9
    %Total rebate credits
    
    $
    5,100
    
    
    $
    5,527
    
    
    $
    (427
    )
    
    
    (7.7
    )%Percent of total net revenues
    
    
    5.8
    %
    
    
    7.3
    %
    
    
    (1.5
    )%
    
    
    (20.5
    )%
   Expenses
 Dollars in thousands
    
    2008
    
    
    2007
    
    
    Change
    
    
    %Center operating expenses
    
    $
    42,999
    
    
    $
    37,316
    
    
    $
    5,683
    
    
    
    15.2
    %Percent of total net revenues
    
    
    49.1
    %
    
    
    49.6
    %
    
    
    (0.5
    )%
    
    
    (1.0
    )%General and administrative expenses
    
    $
    11,664
    
    
    $
    11,306
    
    
    $
    358
    
    
    
    3.2
    %Percent of total net revenues
    
    
    13.3
    %
    
    
    15.0
    %
    
    
    (1.7
    )%
    
    
    (11.3
    )%Depreciation and amortization
    
    $
    1,922
    
    
    $
    1,597
    
    
    
    325
    
    
    
    20.4
    %Percent of total net revenues
    
    
    2.2
    %
    
    
    2.1
    %
    
    
    0.1
    %
    
    
    4.8
    %
   24




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##### Table of Contents



Interest Expense
 Dollars in thousands
    
    2008
    
    
    2007
    
    
    Change
    
    
    %Notes payable from business acquisitions and others (1)
    
    $
    737
    
    
    $
    368
    
    
    $
    369
    
    
    
    100.3
    %Long-term contractual commitment to AARP (2)
    
    
    260
    
    
    
    
    
    
    
    260
    
    
    
    100.0
    %Siemens Tranches B and C interest (3)
    
    
    2,104
    
    
    
    2,006
    
    
    
    98
    
    
    
    4.9
    %Siemens Tranches D and E
    
    
    712
    
    
    
    512
    
    
    
    200
    
    
    
    39.1
    %2003 Convertible Subordinated Notes (4)
    
    
    
    
    
    
    3,153
    
    
    
    (3,153
    )
    
    
    (100.0
    )%2005 Subordinated Notes (5)
    
    
    247
    
    
    
    668
    
    
    
    (421
    )
    
    
    (63.0
    )%Total interest expense
    
    $
    4,060
    
    
    $
    6,707
    
    
    $
    (2,647
    )
    
    
    (39.5
    )%
 2008
    
    
    2007
    
    
    Change
    
    
    %Total cash interest expense (6)
    
    $
    1,302
    
    
    $
    1,281
    
    
    $
    21
    
    
    
    1.5
    %Total non-cash interest expense (7)
    
    
    2,758
    
    
    
    5,426
    
    
    
    (2,672
    )
    
    
    (49.1
    )%Total interest expense
    
    $
    4,060
    
    
    $
    6,707
    
    
    $
    (2,647
    )
    
    
    (39.5
    )%
 (1)
    
    Includes $328000 in 2008 of non-cash interest expense related to recording of notes and
long-term contractual commitment to AARP at their present value by discounting future
payments to market rate of interest (see Note 4  Long-term Debt, Notes to Consolidated
Financial Statements included herein).(2)
    
    Includes $260,000 in 2008 of non-cash interest expense related to the recording of
long-term contractual commitment to AARP at its present value by discounting future
payments to market rate of interest (see Note 4  Long-term Debt, Notes to Consolidated
Financial Statements included herein).(3)
    
    The interest expense on Tranches B and C is forgiven by Siemens as long as the minimum
purchase requirements are met and a corresponding rebate credit is recorded as a reduction
of cost of products sold (see Note 4  Long-term Debt, Notes to Consolidated Financial
Statements included herein and Liquidity and Capital Resources, below).(4)
    
    Includes $2.9 million in 2007 of non-cash debt discount amortization (see Note 5 
Convertible Subordinated Notes, Notes to Consolidated Financial Statements included
herein).(5)
    
    Includes $121,000 in 2008 and $292,000 in 2007 of non-cash debt discount amortization
(see Note 6  Subordinated Notes and Warrant Liability, Notes to Consolidated Financial
Statements included herein).(6)
    
    Represents the sum of the cash interest portion paid on the notes payable for business
acquisitions and others, the cash interest paid to Siemens on the Siemens Tranches D and E
loans, Subordinated Notes and the cash portion paid on the Convertible Subordinated in
2007.(7)
    
    Represents the sum of the non-cash interest expense related to recording the notes
payable for business acquisitions at their present value by discounting future payments to
market rate of interest, long-term contractual commitment to AARP at its present value by
discounting future payments to market rate of interest, Tranches B and C, the non-cash
interest imputed to the 2005 Subordinated Notes and the 2003 Convertible Subordinated Notes
in 2007 related to the debt discount amortization.  25




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##### Table of Contents



Income Taxes
   Minority Interest
  LIQUIDITY AND CAPITAL RESOURCES
 Siemens Facility
   Financing and rebate arrangement
    26




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##### Table of Contents



Calculation of Pro forma Rebates to HearUSA when at least 90% ofUnits Sold are from Siemens (1)Quarterly Siemens Unit Sales Compared to Prior Years Comparable Quarter90%  but < 95
    %
    
    
    95%  to 100
    %
    
    
    > 100% < 125
    %
    
    
    125% and >Tranche B Rebate (2)
    
    $
    65/ unit
    
    
    $
    65/ unit
    
    
    $
    65/ unit
    
    
    $
    65/ unitPlus
    
        
    Plus

    
    
    
    Plus
    
    
    
    PlusTranche C Rebate
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000Additional Volume Rebate
    
    
    
    
    
    
    156,250
    
    
    
    312,500
    
    
    
    468,750Interest Forgiveness Rebate (3)
    
    
    712,500
    
    
    
    712,500
    
    
    
    712,500
    
    
    
    712,500$
    1,212,500
    
    
    $
    1,368,750
    
    
    $
    1,525,000
    
    
    $
    1,681,250
 (1)
    
    Calculated using trailing twelve month units sold by the Company(2)
    
    Siemens units sold by acquired businesses ($65 per unit)(3)
    
    Assuming the first $30 million portion of the line of credit is fully utilized    27




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##### Table of Contents



Marketing arrangement
  Investor and other rights arrangement
    Notes payable from business acquisitions and other
  Working Capital
    28




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##### Table of Contents



Cash Flows
      29




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##### Table of Contents



Contractual Obligations
  Payments due by period (000s)Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1  3
    
    
    4  5
    
    
    Than 5Contractual obligations
    
    Total
    
    
    year
    
    
    years
    
    
    Years
    
    
    years$
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $Long-term debt (1 and 3)
    
    
    50,599
    
    
    
    13,816
    
    
    
    9,996
    
    
    
    26,787
    
    
    
    Interest to be paid on long-term debt (2 and 3)
    
    
    12,926
    
    
    
    3,731
    
    
    
    5,880
    
    
    
    3,315
    
    
    
    Operating leases
    
    
    19.334
    
    
    
    6,487
    
    
    
    8,807
    
    
    
    2,916
    
    
    
    1,124Employment agreements
    
    
    4,789
    
    
    
    2,509
    
    
    
    2,280
    
    
    
    
    
    
    
    Purchase obligations (4)
    
    
    3,992
    
    
    
    596
    
    
    
    2,489
    
    
    
    907
    
    
    
    Long-term contractual commitment to AARP (5)
    
    
    22,800
    
    
    
    7,600
    
    
    
    15,200
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    
    114,440
    
    
    
    34,739
    
    
    
    44,652
    
    
    
    33,925
    
    
    
    1,124
 (1)
    
    Approximately $29.0 million can be repaid through rebate credits from Siemens, including $2.4
million in less than 1 year and $4.8 million in years 1-3 and $21.8 million in years 4-5.(2)
    
    Interest on long-term debt includes the interest on the new Tranches B and C that can be
repaid through rebate credits from Siemens pursuant to the Amended and Restated Credit
Agreement, including $2.6 million in less than 1 year and $4.6 million in years 1-3 and $2.7
in years 4-5. Interest repaid through preferred pricing reductions was $2.0 million in 2007.
(See Note 4  Long-Term Debt, Notes to Consolidated Financial Statements included herein).(3)
    
    Principal and interest payments on long-term debt is based on cash payments and not the fair
value of the discounted notes (See Note 4  Long-Term Debt, Notes to Consolidated Financial
Statements included herein).(4)
    
    Purchase obligations includes the contractual commitment to AARP for campaigns to educate and
promote hearing loss awareness and prevention Members and the contractual commitment to AARP
for public marketing funds for the AARP Health Care Options General Program, including $2.3
million in years 1-3 and $907,000 in years 4-5.(5)
    
    Payments on the long-term contractual commitment to AARP is based on cash payments and not
the fair value of the discounted contractual commitment (See Note 3  Long-Term Debt, Notes to
Consolidated Financial Statements included herein). CRITICAL ACCOUNTING POLICIES
  Goodwill
   30




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Revenue recognition
  
       31




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##### Table of Contents



Allowance for doubtful accounts
   Sales returns
  Vendor rebates
  Marketing allowances
  Impairment of long-lived assets
  Stock-based compensation
 Share-Based Payment
  32




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Income taxes
     RECENT ACCOUNTING PRONOUNCEMENTS
    33




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,
      34




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Item 3. Quantitative and Qualitative Disclosure About Market Risk
  Fixed Rate
    
    
    Variable Rate9.5%
    
    
    5% to 13.9%Due February 2013
    
    
    Other
    
    
    Total$
    
    
    $
    
    
    $(000s)
    
    
    (000s)
    
    
    (000s)2008
    
    
    (7,704
    )
    
    
    (518
    )
    
    
    (8,222
    )2009
    
    
    (2,385
    )
    
    
    (11,921
    )
    
    
    (14,306
    )2010
    
    
    (2,385
    )
    
    
    (9,392
    )
    
    
    (11,777
    )2011
    
    
    (2,385
    )
    
    
    (7,160
    )
    
    
    (9,545
    )2012
    
    
    (2,346
    )
    
    
    (303
    )
    
    
    (2,649
    )2013
    
    
    (23,016
    )
    
    
    (12
    )
    
    
    (23,028
    )Total
    
    
    (40,221
    )
    
    
    (29,306
    )
    
    
    (69,527
    )Estimated fair value
    
    
    (40,221
    )
    
    
    (29,306
    )
    
    
    (69,527
    )
  35




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Item 4. Controls and Procedures
    36




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Part II Other Information
 
 Item 1A. Risk Factors We have updated our risk factors as
stated below to address the effect of current economic conditions on our
business. Economic and other
circumstances could materially adversely affect the Company as depressed
consumer spending adversely affects Company sales. The Company’s operations and
performance depend significantly on economic conditions and their impact on
levels of consumer spending, which have recently deteriorated in the United
States and Canada, and may remain depressed for the foreseeable future. For
example, some of the factors that could influence the levels of consumer
spending include continuing increases in fuel and other energy costs, levels of
employment, conditions in the residential real estate and mortgage markets,
labor and healthcare costs, access to credit, consumer confidence and other
macroeconomic factors affecting consumer spending behavior. These and other
economic factors could have a material adverse effect on demand for the
Company’s products, financial condition and operating results. 
 Item 6. Exhibits
 2.1
    
    
    Plan of Arrangement, including exchangeable share provisions (incorporated herein
by reference to Exhibit 2.3 to the Companys Joint Proxy Statement/Prospectus on
Form S-4 (Reg. No. 333-73022)).3.1
    
    
    Restated Certificate of Incorporation of HEARx Ltd., including certain certificates
of designations, preferences and rights of certain preferred stock of the Company
(incorporated herein by reference to Exhibit 3 to the Companys Current Report on
Form 8-K, filed May 17, 1996 (File No. 001-11655)).3.2
    
    
    Amendment to the Restated Certificate of Incorporation (incorporated herein by
reference to Exhibit 3.1A to the Companys Quarterly Report on Form 10-Q for the
period ended June 28, 1996 (File No. 001-11655)).3.3
    
    
    Amendment to Restated Certificate of Incorporation including one for ten reverse
stock split and reduction of authorized shares (incorporated herein to Exhibit 3.5
to the Companys Quarterly Report on Form 10-Q for the period ending July 2, 1999
(File No. 001-11655)).3.4
    
    
    Amendment to Restated Certificate of Incorporation including an increase in
authorized shares and change of name (incorporated herein by reference to Exhibit
3.1 to the Companys Current Report on Form 8-K, filed July 17, 2002 (File No.
001-11655)).3.5
    
    
    Certificate of Designations, Preferences and Rights of the Companys 1999 Series H
Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4
to the Companys Current Report on Form 8-K, filed December 17, 1999 (File No.
001-11655)).3.6
    
    
    Certificate of Designations, Preferences and Rights of the Companys Special Voting
Preferred Stock (incorporated herein by reference to Exhibit 3.2 to the Companys
Current Report on Form 8-K, filed July 19, 2002 (File No. 001-11655)).3.7
    
    
    Amendment to Certificate of Designations, Preferences and Rights of the Companys
1999 Series H Junior Participating Preferred Stock (incorporated herein by
reference to Exhibit 4 to the Companys Current Report on Form 8-K, filed July 17,
2002 (File No. 001-11655)).3.8
    
    
    Certificate of Designations, Preferences and Rights of the Companys 1998-E
Convertible Preferred Stock (incorporated herein by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K, filed August 28, 2003 (File No. 001-11655)).3.9
    
    
    Amendment of Restated Certificate of Incorporation (increasing authorized capital)
(incorporated herein by reference to Exhibit 3.9 to the Companys Quarterly Report
on Form 10-Q for the quarter ended June 26, 2004).3.10
    
    
    Amended and Restated By-Laws of HearUSA, Inc. (effective May 9, 2005) (incorporated
herein by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K,
filed May 13, 2005).4.1
    
    
    Amended and Restated Rights Agreement, dated July 11, 2002 between HEARx and the
Rights Agent, which includes an amendment to the Certificate of Designations,
Preferences and Rights of the Companys 1999 Series H Junior Participating
Preferred Stock (incorporated herein by reference to Exhibit 4.9.1 to the Companys
Joint Proxy/Prospectus on Form S-4 (Reg. No. 333-73022)).4.2
    
    
    Form of Support Agreement among HEARx Ltd., HEARx Canada, Inc. and HEARx
Acquisition ULC (incorporated herein by reference to Exhibit 99.3 to the Companys
Joint Proxy Statement/Prospectus on Form S-4 (Reg No. 333-73022)).4.3
    
    
    Form of 2003 Convertible Subordinated Note due November 30, 2008 (incorporated
herein by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K,
filed December 31, 2003).
  37




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9.1
    
    
    Form of Voting and Exchange Trust Agreement among HearUSA, Inc., HEARx Canada, Inc
and HEARx Acquisition ULC and ComputerShare Trust Company of Canada (incorporated
herein by reference to Exhibit 9.1 to the Companys Joint Proxy
Statement/Prospectus on Form S-4 (Reg. No. 333-73022)).10.1
    
    
    Hearing Care Program Services Agreement by and among HearUSA, Inc., AARP, Inc. and
AARP Services, Inc. dated August 8, 2008.10.2
    
    
    AARP License Agreement by and between HearUSA, Inc. and AARP, Inc. dated August 8,
2008.31.1
    
    
    CEO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    CFO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    CEO and CFO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  38




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SIGNATURES
  HearUSA Inc. 
(Registrant)November 10, 2008/s/ Stephen J. HansbroughStephen J. HansbroughChairman and Chief Executive Officer
HearUSA, Inc./s/ Gino ChouinardGino ChouinardPresident and Chief Financial Officer
HearUSA, Inc.  39




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EXHIBIT INDEX
 ExhibitNo.
    
    Description10.1
    
    
    Hearing Care Program Services Agreement by and among HearUSA, Inc., AARP, Inc. and
AARP Services, Inc. dated August 8, 2008.10.2
    
    
    AARP License Agreement by and between HearUSA, Inc. and AARP, Inc. dated August 8,
2008.31.1
    
    
    CEO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    CFO Certification, pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    CEO and CFO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  40